FBI v Apple, Older Women Reshaping the U.S. Job Market, and Self-employed Tax Tips On ESPN Radio – February 26, 2016 Show

Topics Covered:

1. FBI v. Apple: The feud that should get you thinking about providing electronic passwords to your family in case of emergency.
2. How Older Women are Reshaping the U.S. Job Market.
3. Important tax tips if you are self-employed.
4. Questions from our listeners:

• Considering women are living longer than men and should be looking further, long-term of managing money, how much would be a good base, considering interest income, amount for one to have saved up upon retirement? Say I retire at 65 but end up living until 92?  What if I out live my significant other and end up on my own in a nursing home. How much should I have squirreled away in order to not burden my family?
• I just incorporated my business and want to elect Subchapter S status. What are the procedures that I must follow?

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Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states:

And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states:

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states:

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states:

For today’s show we have coming up:

Segment 2 material: How Older Women Are Re-shaping The U.S. Job Market.

Windus states:

Also coming up is:

Segment 3 material: Important tax tips if you are self-employed.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Jeff states: So for today’s top story:

FBI v. Apple: The feud that should get you thinking about providing electronic passwords to your family in case of emergency.

Credit to Wall Street Journal: http://on.wsj.com/1XJm12L; http://on.wsj.com/1LDwaXJ; http://www.cnet.com/news/taking-passwords-to-the-grave/

Windus begins: Apple is facing court orders to help investigators in the Justice Department extract data from password protected iPhones. At least a dozen cases nationwide are calling on the tech corporation to assist in investigations where cell phones were confiscated as evidence.

Jeff replies: These disputes are similar to the current battle over a terrorist’s locked phone that has brought to light this on-going feud over privacy and security. The publicized terrorist attack is referencing the December 2nd attack in San Bernardino, where 14 people were killed and 22 were reported injured.

Windus continues: This dispute was funneled to the public after the court ordered Apple Inc. to help the Justice Department bypass security features on an iPhone belonging to one of the shooters, Syed Rizwan Farook.

Jeff states: Now, FBI Director James Comey pinpoints the terrorism case and explains that unlocking said terrorists phone is important to exposing possible other terrorist threats. He further goes on to explain, “We can’t look survivors in the eye, or ourselves in the mirror, if we don’t follow the lead.”

Windus replies: At the same time, Apple CEO Tim Cook is calling the government’s actions “a dangerous precedent that threatens everyone’s civil liberties”, urging prosecutors to withdraw their demands. He suggests that the government form a commission to address situations such as these, brought on by the growing use of encryption.

Jeff states: For now, 51% of the general public is in agreement with Comey’s argument of Apple helping the government to unlock the December 2nd terrorist’s phone, but 38% are in favor of Apple’s stance on preserving privacy and security.

Windus replies: And preserving privacy and security is a position that Cook feels very passionately about. Apple as a whole has hardened its stance over time, adopting more stringent security and encrypted more of its user data.

Jeff states: In a 2014 Charlie Rose interview, Cook elaborated “they would have to cart us out in a box before we would” allow outsiders including the National Security Agency to create a “backdoor” to access users’ personal data.

Windus replies: When meeting in January, both Comey and Cook spoke generally on the issue, but make no significant breakthroughs. If anything, each only solidified their respected stances on the subject.

Jeff states: In the end, it is likely that any legal outcomes of this case will be provisional. Technology evolves at such a rapid pace that Apple and other firms will eventually develop new programs that guard data more securely and out grow old rules.

Windus replies: This includes legislature like the 18th-century law, The All Writs Act, that is currently being pursued by the Justice Department to compel companies to assist with password security by-pass for phones held in evidence.

Jeff continues: However, in most of the cases, prosecutors says that instead of Apple challenging the orders in court, Apple simply deferred complying with them, without seeking appropriate judicial relief.

Windus states: In a letter last week from Apple CEO Tim Cook, “the government suggests this tool could only be used once, on one phone. But that’s simply not true. Once created, the technique could be used over and over again, on any number of devices.”

Jeff replies: When it comes down to it, the government is asking Apple to hack their own users while undermining decades of security advancements.

Windus states: Separately from terrorism, federal prosecutors in New York are disputing with Apple over an iPhone seized during a drug investigation there. But, Apple has continued to stand behind its position that forcing a company to extract data, could threaten the trust between Apple and its customers.

Jeff replies: So where does this leave us on a smaller scale when a relative passes and all of their financial information is eManaged?

Windus replies: I’m so glad you asked Jeff! We’re stuck in the mess but closer to home. If you pass away, so much is electronic; your family may not easily be able to find your assets.

Jeff continues: So, what’s supposed to happen when you lose mom or dad and they just so happen to be managing everything from their portfolios, to their life insurance, to their bank accounts on line?

Windus replies: A fall back is that the state SHOULD report them after one year of missed statements. BUT with technology, that isn’t always the case and sometimes statements aren’t missed because they are emailed, so reporting to the state lost money can take longer.

Jeff replies: In which case, it’s very important to keep a record of all of your accounts and passwords, in case of emergency. Some companies have help desks set up for such an occasion but others cite privacy laws prohibiting them from releasing information regarding anyone’s account, regardless of incident.

Windus completes: From a planning perspective, it’s not a question of privacy rights so much as property rights. You need to have a hard copy of ALL accounts including emails, usernames and passwords, just as much as you needed to have the accounts set up in the first place.

Jeff continues: According to Marc Rotenberg, executive director of the Electronic Privacy Information Center, “The so-called ‘Tort of Privacy’ expires upon death, but property interests don’t. Private e-mails are a new category. It’s not immediately clear how to treat them, but it’s a form of digital property.”

Windus replies: In terms of estate planning, it is much easier if a family member already has user sign on information, like a username and password, as the situation comes up fairly regularly. It would be wise to put all passwords to sites online in an estate planning document, end of story.

Jeff states: Well it’s time for a break but stay tuned because we are going to tell you how older women are re-shaping the U.S. job market

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states: And before we start on this next segment, Windus would like to tell you of her special offer.

Windus states: Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

Jeff resumes:

How Older Women Are Re-shaping The U.S. Job Market.

Credit to Wall Street Journal, Bloomberg News and ProPublica: http://on.wsj.com/1XJrbf5; http://www.propublica.org/article/the-impact-and-echoes-of-the-wal-mart-discrimination-case; http://www.bloomberg.com/news/articles/2016-02-17/working-women-a-new-book-stands-up-for-the-single-ladies

Jeff states: More and more female workers are delaying retirement, in a shift that’s helping transform the US economy. There is a wave of American women who are working, or looking for work, longer than any previous generation.

Windus replies: In fact, since the beginning of the December 2007 recession, the percentage of older women working has grown while the rates of all other categories of U.S. worker, categorized by gender and age, has either declined or made no change at all.

Jeff continues: According to historical and projected statistics by the Labor Department, one in twelve women worked past the age of 65 in 1992. Currently, that same number has increased to around one in seven. By 2024, it will escalate to almost one in five, the equivalent of roughly 6.3 million workers.

Windus states: Richard Johnson, director of the Urban Institute’s program on retirement policy, this is “one of the most stunning developments that we’ve seen in the labor market in over the last 50 years.”

Jeff states: While some are extending their careers because they enjoy working late in life, others are doing so under a more fiscal necessity.

Windus replies: That’s right, Jeff. People are living longer, and with that are concerned with outliving their savings. Americans are approaching old age and finding themselves with more debt and less savings. In addition, fewer are receiving pensions than in previous generations.

Jeff states: Consider it this way, Windus. The current growth among older female workers in job market reflects a realignment that began over a half-century ago when women joined the workforce.

Windus replies: The rate of older Americans in the workforce fell every year from the end of WWII to the 1980s, but has since shifted. In the mid-1990s, employers transitioned from traditional employer sponsored pension plans to 401(k) savings plans that shift the responsibility of saving for retirement onto the employee, instead of the employer.

Jeff replies: This shift in funding made it necessary for Americans to continue to work until they could afford to retire and not just when they met a certain age.

Windus states: As a result, older Americans are leaving the work place more slowly than in the past, signifying a greater potential in the labor supply, as well as more slack, than an unemployment rate below 5% would usually entail.

Jeff replies: Last month, when the unemployment rate dropped below 5%, it was a faster drop than any economist had expected and a level that had not been seen since early 2008. This should trigger higher wages as employers search through fewer potential new hires, but it hasn’t yet.

Windus replies: But it’s not just about wanting to work longer, it’s having to work longer. Women out live men and therefor, have a greater propensity to out-live their savings. Older Americans have more debt than in previous years.

Jeff states: For example, in 2013, homeowners aged 65 or older with a mortgage, still owed roughly $88,000 on their loans. That’s up from the average in 2001, which ran about $43,400. The problem could be would-be retirees who were hit hard during the last financial crisis, cannot afford to retire.

Windus replies: Although several economists acknowledge a tie between financial insecurity and later retirement, it is difficult to prove considering that many working later in life are skilled workers with higher incomes.

Jeff states: According to census data maintained by the University of Minnesota, the increase in working women ages 55 to 64 over the past decade have been split fairly evenly between college graduates and those who only finished high school.

Windus replies: In reality, if financial hardship was the primary factor of women working later in life, there would be a greater ratio of those who had lower-skilled occupations.

Jeff continues: Regardless, of those who remain employed, the need for money was the most cited reason for working later into life, exceeding those who are working out of enjoyment nearly two to one, in a survey published in 2014 by AARP.

Windus states: Statistically women live longer and save more conservatively than men. This becomes a problem when the issue of out-living your finances presents itself. How to you remedy this situation? Put together a financial plan that pieces together all the factors that worry you and call me…

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

Jeff states: Stay tuned because after the break we are going to tell you important tax tips if you are self-employed.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states: So before we start this segment, I want to remind our listeners that PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff resumes:

Important Tax Tips If You Are Self Employed.

If you are self-employed, you normally carry on a trade or business. Sole proprietors and independent contractors are two types of self-employment.

Independent Contractors.

Jeff asks Amy: How does the IRS define who is an Independent Contractor?

Amy replies: People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors.

Windus asks: But I know that many people who work in one of these occupations are treated as employees so how do you differentiate worker who are independent contractors?

Amy replies: Whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

Sole Proprietorship

Jeff asks Amy: How does the IRS define what is a sole proprietorship?

Amy replies: A sole proprietorship allows an individual to own and operate a business by him/herself. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business. If a sole proprietorship is formed with a name other than the individual’s name, a Fictitious Business Name Statement must be filed with the county where the principal place of business is located. Generally, there are no other formal requirements to own and operate a sole proprietorship. However, depending on the business venture, a particular license or certification may be required.

Windus states: If either of these situations apply to you, there are a few basic things you should know about how your income affects your federal tax return and of course with our two tax attorneys in the house, let’s have them go over the most important tax tips you need to know if you are self-employed.

Amy and Jeff to read off each tax tip and explanation.

Jeff states:
• SE Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.

Amy states:
• Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. See the form instructions to find out if you can use the form.

Jeff states:
• SE Tax. You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.

Amy states:
• Estimated Tax. You may need to make estimated tax payments. Try IRS Direct Pay. People typically make these payments on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty.

Jeff states:
• Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.

Amy states:
• When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

To Incorporate Or Not To Incorporate?

Jeff states: So a question that we hear a lot of is whether a self-employed individual should incorporate his or her business.

Amy states: When forming a legal entity, it’s best that it be created separate from the holdings of its owners to ensure limited liability. Historically, the choice has been for owners to form a corporation. Today, however, there may be better choices besides a sole proprietorship or corporation.

Amy continues: Other multiple organization structure possibilities include:
• Limited Liability Company (LLC)
• Partnership
• Limited Partnership
• Limited Liability Partnership

The advantages of incorporating (including forming an LLC).

Windus states: So to help our listeners who are considering this issue, how about I have our two tax attorneys, Jeff and Amy, go over the advantages of incorporating or forming an LLC.

Amy states: Limited Liability. Corporations and LLC’s offer limited liability risks to their owners (shareholders for corporations and members for LLC’s). In most corporate or LLC structures, shareholders or members are not personally liable for the debts and other liabilities (including legal) for the business.

Jeff states: Ease Of Attracting New Investors and Facilitates Exit Strategy. Whether it’s a corporation or LLC, your ownership interest is evidenced by a share certificate for a corporation or a membership interest for an LLC. Either way it is a document or a right that you can transfer to someone else without having to change anything on the business’ operations, assets or liabilities.

Amy states: Lower Audit Risk. It is a known fact that self-employed individuals who file their Form 1040 reporting their business income and business expenses on Schedule C run a higher risk of audit than self-employed individuals who incorporated their business and all of this detail appears on a separate corporation income tax return.

Jeff states: Favorable Payroll Tax Consequences. Corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and if planned correctly owners do not pay self-employment taxes and this can equate to a big tax savings to you.

The three most popular entities used by self-employed individuals:

Windus asks: What are the three most popular entities used by self-employed individuals?

Amy replies: C-corporation. A corporation is an entity that exists separately from its owners (shareholders). A corporation may be utilized to provide asset protection for its stakeholders, as well as protection for managers, officers and directors. Any corporation that does not elect to be treated under Subchapter S of the Internal Revenue Code is a C Corporation.

Jeff replies: S-corporation. A corporation electing Subchapter S regulation provides limited liability to its shareholders as well as pass through taxation to shareholders (meaning the corporation is not taxed but the corporations shareholders are taxed individually.) In other word, it is the income or loss of the S-corporation that will flow through to its shareholders to be reported on their individual income tax returns.

Amy states: Limited Liability Company (LLC). A domestic limited liability company generally offers liability protection similar to that of a corporation but is taxed differently. Limited liability companies may be managed and operated by one or more managers, or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the limited liability company and the conduct of its business is required.

Jeff states: Generally, businesses operating in California will choose to become incorporated in California. However, there may be advantages to incorporating in Delaware or Nevada, and registering the business in California as a foreign corporation.

Jeff continues: Choosing the proper entity when establishing a business is a critical decision so consider this ….

PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

And Windus and I always pleased to make our offers to our listeners where… PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Windus states: Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

You should also know that the securities and advisory services are offered through National Planning Corporation (NPC) Member FINRA, SIPC, and a Registered Investment Advisor. Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Windus, what questions have you pulled for us to answer?

Questions from Anne of Del Mar:

This is a two part set of questions.

Part 1: Considering women are living longer than men and should be looking further out, long-term of managing money, how much would be a good base, considering interest income, amount for one to have saved up upon retirement? Say I retire at 65 but end up living until 92?

Windus answers.

Part 2: What if I out live my significant other and end up on my own in a nursing home. How much should I have squirreled away in order to not burden my family?

Windus answers.

Stephanie from Newport Beach asks: I just incorporated my business and want to elect Subchapter S status. What are the procedures that I must follow?

Jeff Answer: A corporation or other entity eligible to elect to be treated as an S-corporation must use Form 2553 to make the election.

Requirements:
1. Corporation has no more than 100 shareholders. An individual and his or her spouse (and their estates) as one shareholder for this test. Special rules also apply for counting members of a family and other situations which can keep you within this 100 limitation. Note there is no limit on how much assets or income the entity has, only the number of owners.
2. Its only shareholders are individuals, estates, exempt organizations.
3. It has no nonresident alien shareholders.
4. It has only one class of stock (disregarding differences in voting rights).

You have to adopt as your tax year a calendar year meaning that your annual tax reporting will be January 1st to December 31st.
The Form 2553 must be signed by a corporate officer and each individual who is a shareholder at the time of making the election. You must file this form no more than two months and 15 days after the beginning of the tax year the election is to take effect. So that means to have an S-election effective for January 1, 2016, you must file this form with a postmark no later than March 15, 2016. If you wait until after that date for a corporation that was formed on or before January 1, 2016, your S-election would not be effective until January 1, 2017 unless your qualify for relief from late filing of this election.

Jeff states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Have a great day everyone!