Convert an LLC to C-Corp

January 31st, 2009

I’m going to join an already established LLC owned by a friend and a partner. How does liability for an LLC work? If I own 5% of the LLC what is my personal responsibility (tax and otherwise) if the company makes say $1k. What about if the company ends up owing $1k? The LLC is based in New York, but I live in Pennsylvania, does this complicate things and if so how? Also, the eventual goal is to get venture funding. How difficult is it to move to a C-corp? What about an S-corp? (What’s the difference? I didn’t really understand a difference from reading Wikipedia)

With an LLC, the company doesn’t actually make any money (tax-wise). Instead, the income that the company makes flows through to you. For example, if your company makes $1k and you have a 5% share, you add $50 to your tax return and to your tax return only. Losses flow through the same way, basically.

As for company debts, you’re not personally liable for them.

I’m not sure about venture funding, but generally, S-Corps are better than C-Corps. The difference between them is that you’ll generally get double taxed with a C-Corp (company pays tax on its income, then you pay tax on what you receive from the company), while S-Corps have the same flow through as LLCs.

Restrictions on S-Corps include:

-shareholder limit (~100, depends on state laws I think)
-can’t be owned by corporations, partnerships and trusts, only individuals and estates

Posted in Business Advice | No Comments »

How To Handle a Debtor

January 31st, 2009

A few years ago I bought a car I couldn’t afford. Long story short, it got repossessed, and I owe the balance of what wasn’t paid at the auction - around $4k plus interest.

They tried to garnish my wages, which I didn’t contest, but they couldn’t as at the time I made less than a certain amount which was allowed by the state.

I haven’t received a letter or phone call from them in about 8 months. The last letter I received stated that they were trying to garnish my wages again, at the same job as before, but I hadn’t worked there in 6 months so they obviously didn’t get that. As I haven’t heard from them since, I wonder what my obligations are?

On a certain level, I want to pay what I owe. I fucked up, I made bad decisions, and it’s my burden to pay the collection agency. However, they haven’t contacted me in 8 months, and I don’t go through any pains to be unreachable. My credit is already ruined, I am not worried about that too much at this point. What are the chances they’ve given up and “written me off”? Will they send me a letter 5 years from now stating that I owe the original balance + 5 years interest? Is it up to me to contact them to make arrangements?

The statue of limitations varies for state to state, but it is usually a couple years. They will keep tacking on interest until you pay. If they don’t collect the debt, it will be recorded as uncollected on your credit report. They can still pursue the debt even after they mark it as uncollected on your credit report.

Go to Annual Credit Report to view your credit report and the collection agencies information.

You may be able to negotiate with them to settle for a lesser amount.

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Careers in Economics

January 30th, 2009

I’m a first semester college freshman who just recently made the decision to major in economics with a concentration in public policy. I don’t have many defined career goals, but I have a strong desire to work, as a federal employee or otherwise, in Washington, DC (mostly because I was born and raised in the metro area and I love the city). I understand this is very vague. What would my career options be assuming I do well in school? I identify myself as a male African American when asked (actually mulatto to be precise), how attractive would this make me in the job market? Is a graduate degree in econ helpful/necessary? I attend a medium sized public university in Virginia that isn’t one of the famous ones.

If you want to be an economist, then you will definitely need at least a minimum master’s or doctorate in economics. In terms of simply having a bachelor’s, I’m sure there are plenty of available employment opportunities for you with the federal government in Washington DC. However, there will also be competition against other qualified college students, particularly political science majors.

I really hate it when people ask if race plays a part of the process. (As if it wasn’t obvious enough.) Since you are an underrepresented minority, then yes, it will be a beneficial role in employment decisions.

Also, if you do decide that you want to pursue a graduate level degree in economics, you’ll need an extremely strong math background. Think double-majoring, unless your school’s program is very mathematical at the undergrad level (which is generally pretty rare).

You’ve only got a few weeks of your first semester under your belt, you should have tons of room to switch around your future courses and change your majors if you want to. Unless your college has insanely picky major tracks that force you to immediately declare a major and stick with it forever and make you take specific courses and that schedule leaves you no room to take any electives from the moment you get there, which I doubt, since colleges like that force you to apply to a specific major in your application. You should have tons of wiggling room to switch majors.

You sound very unsure of what you want to do, which is understandable for a freshman, but if you want to do economics graduate studies then at the least a minor in math is highly recommended. Physics also works as it is understood that to have a physics minor/major you need to know a certain amount of math. Basically the point here is that econ grad work involves a lot of math (undergrad, not so much, usually calc is enough). The reason for this is because, like physics, a lot of economics is all about modeling real life events, and math happens to be a great tool in doing this.

It took me all of my first three semesters at college to find out what I wanted to do. I thought I was going to be an engineer, then I switched to engineer/comp sci double, then I switched to comp sci/math double, then I switched to econ/math double (which finally stuck). And all of this happened within 3 semesters, while I was taking other courses outside of those 4 departments as well. You should really take a sampling of courses if you are so unsure of what you want to do, focus on econ, physics, math, and political science for your first year and see what you want to do, then take it from there. You usually don’t need to declare a major in your first year of college (at least in America).

Posted in Finance Job Advice | No Comments »

Canadian Tax Free Savings Account

January 30th, 2009

At the start of this year, we Canadians have a new weapon in the fight against poverty or something.

The Tax Free Savings Account or TFSA is an account that provides tax benefits for saving in Canada. Contributions to a TFSA account are not deductible for income tax purposes but investment income, including capital gains, earned in a TFSA are not taxed, even when withdrawn.

The TFSA works like the opposite of a Registered Retirement Savings Plan (RRSP). After-tax income of up to $5,000 per year can be placed into a TFSA.[11] This money can then be withdrawn at any point of time, without penalty. Unlike RRSP’s, which must be withdrawn after the holder turns 71, the TFSA does not expire.

From Wikipedia (http://en.wikipedia.org/wiki/Tax_Free_Savings_Account)

This isn’t something you should maybe think about doing. This is something that you should take advantage of, period. This is an absolute no-brainer.

Here’s the official government page: http://www.tfsa.gc.ca/ which links to A helpful Howto.

I’ve gotten the RBC brochure and talked about it quickly with an agent. Aside from that, I haven’t really done much research. I’ll probably just stick to a high interest savings account at first.

ING offered one starting back in either November or December of last year (they paid double the interest on any balance to cover the taxes you would have had to pay). I don’t have anywhere near the amount in saving that I need to worry about paying taxes on it, but I opened an account anyway and ended up making a few bucks extra because of their “double interest”. Right now I’m just using it as a regular savings account, but eventually when I’m making more money it will be a very good thing to have.

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How to Choose the Right Bank

January 30th, 2009

I was with WaMu for a long time but closed my account there because a job I had gotten (and no longer have) needed me to have CitiBank to be eligible for direct deposit. Since I no longer have that job, CitiBank is absolutely atrocious and I need to get the hell out of it.

I wanted to go back to WaMu, but after hearing a horror story from a fellow friend, I figured I’d see what the rest of you have to say about banks and go from there.

(In case you’re wondering, CitiBank charges me more a month than what they had said they would when I first signed up, charged me for checks when I told them I don’t need checks and refused to reimburse me for quite a long time, and has the shittiest customer service that I’ve ever encountered.)

I don’t really know what to look for in a bank. All I know that I really need is a Debit Card since I hate carrying more cash than necessary, and yeah. I live in Southern California if that changes what banks are around here, but I’m sure most banks are all over the place that it wouldn’t help.

Any other information I need to provide, just ask.

Look into the credit unions in your area. Probably some are good and some suck, but in general they work more in your interest than the big banks. You can usually qualify for membership just by being in the same zip code, even if you wouldn’t think so based on the name of the CU.  Credit unions. Also, Robert Prechter’s newsletter and TheStreet.com have bank ratings by state. If I was a WaMu customer, I’d consider staying on or going back, as JPMorgan is much stronger than Citi or Wells. I think a ten year CD at WaMu yields 2.15% nowadays, so perhaps banks in general aren’t the answer!

You really need to look at what you need as far as services. Personally I have had a hard time finding a CU which has a good billpay program. Mostly they use third party companies who do an ACH w/d from your checking and send it in, but have had nothing but problems with it, same with my GF.

Small disclaimer, I work at Wells Fargo and I moved my banking over to Schwab. I’m actually a banker at Wells and there is nothing that pisses me off more than having to tell customers they have to talk to three sets of people to get a problem fixed (it’s not passing the buck, you really HAVE to) . The basic problem is that there was human error or the products are just annoyingly complicated. If you’re a private bank client (IE $1 mil plus) Wells is amazing, and if you’re into day-trading and have loans/deposits over 25k, it’s also pretty good (100 free trades a year). I just wouldn’t suggest it if your banking needs are simple.

With schwab it’s pretty basic if you have direct deposit, odds are you can go years without having to talk to anyone who works at the bank. I won’t go over the same stuff antishock did, but just add a couple things. My personal fav is the fact that the debit card has a warranty extender (yea they take extra effort, but well worth the time) and other features you normally only see on a higher end credit card. And they offer credit cards… Also you can set it up to pull money out of a local bank via ACH if you don’t like to mail deposits.

Credit unions are awesome if you have more complicated financial situations and want to build a relationship with a local bank. I still know people who talk to their CU managers to get loans approved, about the only thing branch managers can do for major banks is reverse overdraft fees. But if all you need is a direct deposit bucket, why deal with the crappy online banking?

One last thing, Wells Fargo will charge you $2 for calling and speaking with a banker to get your balance or do transfers if you open your account in California, however they are one of the few companies who has SMS banking, so if your phone doesn’t have a browser or you don’t have a data plan, that’s another thing to consider.

Posted in Banking Advice | No Comments »

Payday Loans Benefits

January 29th, 2009

What are the benefits of payday loans?

The main purpose of a payday loan is to provide you with instant cash on a short term basis to cover any unforeseen expenses that you need to pay quickly before you receive your next pay check.

To apply for a payday loan you need to be currently employed with a steady income and you must have a bank account with a debit card. But if you meet these qualifications you can borrow up to $1,500 and use the money however you wish.

Most banks and other lending organizations often take a few weeks to approve a loan and send you the funds, but payday loans can be deposited into your bank account within 24 to 48 hours of receiving your initial application.

One major benefit of a payday loan is that it may be the only option for some people to get approved for a short term loan when they have a bad credit rating. Payday loan providers don’t check credit ratings so it can be a viable alternative.

Although payday loans bear a higher level of interest, they are one of the easiest ways to get hold of money fast when you need it most. By paying back your loan on time, you can also help to repair your credit rating.

Most payday loan providers need minimal paperwork and don’t require any documents to be faxed or posted. This makes the application process very simple and you will usually receive an instant decision and get approved within minutes.

With all that said, I can’t recommend you ever get a payday loan.  Find another way.

Posted in Loan Advice | No Comments »

Personal Loan vs. Revolving Line of Credit

January 29th, 2009

So here’s something I’ve been thinking about, and I just want to make sure I understand it right.

With a loan, you have your minimum monthly payment that you need to make, plus interest, until you’re paid up. If you can’t make the payments, then oh shit!

With a revolving line of credit with no time term, you make your minimum payment, but you can borrow that same amount the same month! Thus, you can hold onto the money forever, except that you’re accruing interest of course. Do I have this right?

Now don’t get me wrong, of course one shouldn’t plan on doing this, but it’s more of a consideration of what happens if you fall on hard times for a while, while you’re repaying. If it works like that, it seems like you would have to pay a higher interest for that luxury, but Wells Fargo’s site says that “Lines of credit have variable annual percentage rates that are generally lower than loan rates.” What gives? It just seems too good to be true, in a “something for nothing” sense, and I want to make sure I’m not misunderstanding, and that I’m not opening myself up for a chance to dig myself into a hole in the future.

You’re right about the line of credit being able to pay itself, but banks usually aren’t that stupid. Especially right now the bigger banks are looking out for this kind of crap and will just shut your line off. And that is pretty much negative compounding anyways, which is just painful.

If you really want to swing at this get a credit card with another bank and make all of your purchases on that card. Then use your line of credit to pay off the credit card each month going until you need to. This gives you a 20-50 day period on purchases where you are not paying interest on them. Also it makes it harder to see that you’re pretty much just floating yourself and the bank might have a harder time spotting it.

This is all really stupid to do, however. Credit isn’t free money and it isn’t too good to be true. At best you can float a few bucks for a few weeks if something major happens. I had my transmission blow and I couldn’t pay for it until I got my bonus two month later, but I managed to float it long enough to never pay a dime in finance charges.

If you want to make plans for future emergencies, save money and start making cuts to your spending now. Just think about things like this:

Ten years from now this one trip to Taco Bell will have cost me $90, do I really want to pay that much for a fucking taco?

And loans have higher rates because banks assume the risk that rates will rise. If you’re locked into 5% for ten years, and rates move to 10%, you’re making out quite well so the bank charges a premium when you create the loan. Lines of credit go up and down based on the prime rate, so if rates go up on prime, yours goes right along with it.

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Military DOD Saving Account

January 29th, 2009

John asked, “I have recently learned about the Military Savings Deposit Program because I will be stationed in a eligible area. What this also means is that my income will be tax free.”

Max it out.  A guaranteed 10% return is pretty damned impossible to find right now.

That said, there are many municipalities/government entities that need to issue bonds now for various reasons. Most of them are perfectly solid, well-funded organizations who are caught in the same credit market nastiness as everyone else and are stuck paying out. There are some tremendous returns available, tax-free, in muni bonds right now.

Pros: tax free. There are plenty of well-rated organizations that are paying the equivalent of 8% with the tax-free status factored in (assuming you’re an average American whose income would put those returns in the 25% bracket).

Cons: Much less liquid than a simple savings account.

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How To Rent Out A Home

December 2nd, 2008

Janice wrote:I own a 3-5 bedroom home (I guess officially 3br/2bath, but there is an upstairs with two rooms that have closets, etc, just no bathroom up there) that I have been living in and renting out to my friends for the past two years. Got lucky because they always paid rent, weren’t douchebags, etc.

This was while I am in college, though. I am graduating and do not want to stick around the house. My friends are all graduated now and are starting to move away and I do not want to have to rent it room-by-room to people I don’t know who are unreliable/etc. With the economy, it probably is not a good idea to sell the place. As such, I either want to rent it out to a group of students/young professionals, or to a family.

How difficult would this be to do on my own? Is it worthwhile to just get a manager who will take off 10%? I’ve had to rent out a single room before and it was a big hassle to get someone in there and to not have them skip out/abuse drugs (I’m talking shooting up, not just some pot smoking)/etc. Could I expect such hardships in finding a family or a group?

Currently the mortage is $1450, I actually bought it with a new roof/appliances/etc so very little maintenance (but I have $7,000 currently saved up and I put in more every month just for the house), and I pay $50 every 3 weeks for yard people to come by and keep it all nice looking, so if the manager wants 10%, I’d probably be looking at $1800/month to rent it and not be taking a loss, which is mid-range where I am, just above student “zomg how many apartments can we fit on the smallest amount of space” places.

10% is on the high end for property management, 6% is more common. I’ve also heard of some places charging a flat per-property fee.

Also it’s probably worth it to avoid any headaches stemming from occupant turnover, maintenance, etc. — ESPECIALLY true if you’re going to be out of the area.

One property is, on average, not a problem if it’s well maintained, but speaking from experience (I manage 28 units scattered around town) when something goes wrong it can be a full time job getting stuff back in order.

I use a property manager for my house in Florida. To me it’s worth it just to avoid the headaches, I never have to see or talk to the tenant, and that’s the way I want it. Using a manager keeps it business like and it never gets personal, so if my tenant is ever late with the rent, I don’t have to hear it, and the manager takes the appropriate steps.

I went with a manager through Coldwell Banker because their screening process is pretty strict, no prior evictions, no felonies, etc. I’m really happy with it so far.

Posted in Real Estate Advice | No Comments »

Financial Situation Assessment

November 3rd, 2008

Mannie wrote: I was married to a U.S. Navy serviceman, and he died in October 2007. While I did not receive his insurance (I have a post in A/T’s Legal Questions Megathread concerning that situation,) I did receive some death benefits totaling ~$122k.

I receive monthly payments from the government now as well - $1288 per month total without educational assistance; $2203 per month with it. I only receive the extra amount during the times I’m enrolled in school.

I have health/dental insurance provided by the government. I receive this for free for three years from the time my husband died, which means I have a little less than two years remaining now. After the free period, I will pay at the retiree rate.

I will be graduating from my university in December 2009 with a B.S. in Management, Human Resource Management concentration. I have a 3.89 GPA right now; I’m confident that it will be in the 3.9s when I graduate. I do not have any student loans; my parents funded my tuition and books for the first half of my college career, and the government now funds the rest.

Because I commute to school, I bought myself a 2006 Honda Civic in February 2008. I paid ~$3k down, placed $15k in a share certificate at my credit union, and then borrowed against it in order to build my credit. I got into some trouble with credit cards when I was younger (I will turn thirty in April 2009,) but my credit report looks clean now. I have a mediocre score of 637, but I fear that it will soon drop because an old closed account in good standing will soon vanish.

I live at home, and I have very little expenses. I pay for the monthly DirectTV bill, and I pay for our family cellphone plan. I also pay my “car payment,” which is just what I call the payment for the loan at my credit union.

I have $100k in CDs at my bank; I took advantage of a 4.16% APR / 4.25% APY promotion there. This rate was only for one year, and my CDs will mature in September 2009. ~$600 is in a special savings account that earns higher interest, but it’s based on transferring $1 from my checking account each time I use my Visa debit card. I can transfer a maximum of $100 to this account each month, which is what I do. The remainder of my funds are in an interest-bearing checking account, but the rate is minuscule at 0.05%.

I do not work, and I have not worked in several years. I’ll be actively trying to find an internship/entry-level job over the summer months.

Okay! Now that everything has been explained, here are my questions:

1. Is there anything that I could/should be doing with my $100k other than CDs? I know I have to pay taxes on the interest.

2. What steps can I take to build my credit score? I’m not ready to buy a house right now, but it’s definitely something I want to do within the next five years. However, I do qualify for a VA loan (up to $200k, I believe.) Also, I have no credit cards - and thus no credit card debt.

3. I will be starting my career “life” at age thirty (provided that I obtain an internship/job this summer, which is a task in which I’m confident I’ll succeed.) Will I still be able to have a nice retirement as long as I plan for it? In other words, have I started financial planning too late?

I know that these may seem like basic questions, but I’m just now learning about financial planning. Even though I’m in the business program at my school, I haven’t had a lot of exposure to the intricacies of investing soundly.

And, to answer the inevitable question of “where will I live after graduation,” let me say that right now I’m not sure. I’ve been set on attending graduate school in my boyfriend’s hometown, which means that I would be staying with him. We’ve been looking at a brand-new two-bedroom apartment that he can obtain for half rent, which means our expenses would be minimal. However, my school supposedly has a program where my graduate program there would be paid as long as I agreed to teach for a year (or so) afterward. I still have to find out information on this program, and the professor who knows is on sabbatical this semester.

I’m aware that it would be in my best interest to speak with a fee-only financial planner, but I want to have a bit more knowledge at my disposal first.

If you don’t belong to USAA, you should join. They tend to have low rates on all kinds of things, especially things like car insurance.

Other than that, does anyone in your family have a credit card with a high limit in good standing? My dad added me to one of his once when I might suddenly need it in an emergency, and it jumped my credit rating a surprising amount.

It seems like most people around here get a card with reward points of some kind and use their cards for everything, then pay them off completely every month. Might be better than a store card if you can get a good one.

Don’t delay with the car insurance. My husband and I both have clean driving records. I know AAA is hardly considered to be cheap insurance, but I was still surprised when we got married and were able to insure both cars and add renters insurance for more coverage and less money than I’d been paying for just my car at AAA. When I went in to cancel, the AAA woman was asking me about why I was leaving, like maybe she was going to offer me something better, but when I said I was switching to USAA, she just dropped it and canceled the policy.

If the store card has advantages, there’s really no reason not to get one, as long as you don’t a) buy more because of the discount, thus wiping out the discount; or b) fail to pay it off in full every month.

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