Posts under: Business planning

The NCAA, Trademarks, and Your Business

March 6, 2018 Business planning, Law, Small Business Comments Off on The NCAA, Trademarks, and Your Business

The NCAA has trademarked over 70 slogans, should your business have at least one trademark?

If you were to take a look at my undergraduate and law school transcripts, you’d notice one fairly obvious pattern – my grades were always better during Fall Semester than Spring Semester.  Why?  Well, I’m glad you asked!

I think the downturn always began during the first weekend of the NCAA Basketball Tournament (you might call it The Big Dance).  I’ve been filling out brackets since before filling out brackets was cool, and during that opening weekend of the tournament, I didn’t stray much from the TV – including to attend classes – from the opening tip of the first game on Thursday morning, until the Sweet 16 was set on Sunday night.  During March, I pretty much traveled the Road to the Final Four to the exclusion of everything else – all the way from Selection Sunday, through the Elite 8, and finally to the promised land of the Final Four.  I guess you could call my mania March Madness or March Mayhem, but whatever you want to call it, it was real, and my academic pursuits tended to suffer.

Would it surprise you to know that the preceding paragraph contains nine (yes, nine!) trademarks registered to the National Collegiate Athletics Association (“NCAA”), and that this sentence contains two more?!  The NCAA owns registered trademarks for approximately 70 slogans or phrases, not to mention a ton of logos that I didn’t even bother to count.  My personal favorites are “Pinnacle of Fitness” (???) and “It’s More Than Three Games” (Um … No … If you’re talking about the Final Four, then it really is just three games).

Anyway, the NCAA has taken the time, effort and expense to register these 70 or so terms as trademarks in order to corner the market on their use for the services/products they provide (generally athletic competitions and the broadcasts thereof). Other organizations are therefore precluded from putting on a sports tournament in March and calling it “March Madness” and/or calling their semifinals and finals the “Final Four.”  This trademark protection greatly enhances the NCAA’s brand, and the NCAA’s portfolio of intellectual property is surely valued in the tens of millions.

However, trademarks aren’t just for giant organizations and corporations.  They are relatively inexpensive to obtain, and can prove invaluable to the long-term growth of your business.  So, when should you think about registering a trademark?

  • You are using a particular name, logo, and/or slogan to market your goods and/or services, and you believe that name/logo/slogan is key to the success of your business. Building a brand is useless if a competitor can take that brand and use it to their advantage.  Registering a trademark is a huge step in protecting the brand you have worked so hard to build.
  • You are offering your goods or services on the internet, or beyond the borders of your local market. Common law trademark rights are limited in geographic scope.  When you register a trademark, you are protected nationwide.  A U.S. trademark registration can also be used to unlock the door to obtaining a trademark in most other countries.
  • You are concerned about a competitor (current or future) coming in and using your name and/or logo in your local market. Registering your trademark can be a powerful deterrent to potential competition.
  • You haven’t quite started offering your goods or services yet, but your name and/or logo is so good, you’re afraid someone you have shown it to (or maybe someone else) might beat you to the punch. In the U.S., the first person/entity to use a trademark in commerce has the rights to that trademark.  However, before you actually use the trademark, you can file an “Intent to Use” trademark application that will give you roughly 12 months (including extensions) to use the mark in commerce.  If you can show the USPTO such a use within that time, your priority date for using the mark will be the date you filed your “Intent to Use” application. You will therefore be able to claim priority over anyone who began to use the mark in the interim.

A trademark registration can be a powerful tool to grow and maintain the health of your business.  Please feel free to contact me if you’d like to discuss what makes sense in your individual situation.

How the New GOP Tax Law Affects Owners and Investors of Real Estate

December 28, 2017 Business planning, Real Estate, Small Business, Tax Planning Comments Off on How the New GOP Tax Law Affects Owners and Investors of Real Estate

Real estate has always been a major step in achieving the American dream and so there was plenty of concern within the industry that major changes in the taxes affecting owners and investors of real estate would negatively impact the industry and the tax benefits of owning real estate.   While the final tax changes are expected to diminish the tax benefits for some owners such as:  homeowners who take out mortgages above $750K, homeowners using home equity lines of credit, or homeowners in certain markets with high state tax, the overall impact on real estate, in our opinion, is likely to be nominal.   Below is a summary of the current laws and changes to the tax laws affecting owners and investors in real estate.

State and Local Tax:

Prior Law:

Individuals who itemize their deductions can claim deductions for specific state and local taxes including real property taxes, state income taxes, and sales taxes.  Property taxes incurred in connection with a trade or business can be deducted from adjusted gross income without the need for itemizing.

New Law:

Individuals who itemize (which will likely decrease in light of the increase in standard deductions) are allowed to deduct up to $10,000 ($5,000 if married filing separately) for any combination of (1) state and local property taxes (real or personal), and (2) state and local income taxes.  Prepayments on state income taxes in 2017 for future tax years may not be deducted.

However, state, local and foreign property taxes or sales tax may be deducted when incurred in carrying on a trade or business or for the production of income (reported on Schedules C, E or F).

Conclusion:  Generally worse for Taxpayers who itemize and pay high state and local taxes.

Mortgage Interest:

Prior Law:

Individuals may deduct mortgage interest up to $1M ($500K if married filing separately) of home “acquisition indebtedness”  (secured debt to acquire, construct or improve) on their principal residence, and one other residence of the taxpayer which can include a house, condo, cooperative, mobile home, house trailer, or boat.

Individuals with Home Equity Lines of Credit (HELOCs) were allowed to deduct interest paid on up to $100K ($50K if married filing separately) of a Home Equity Line of Credit.

New Law:

For homes purchased after December 15, 2017, the deduction for 1st home mortgages would be limited to interest paid on mortgages up to $750K ($375K for married filing separate) and is not limited to only your principal residence.  For refinances, the refinanced loan will be treated the same as the original loan so long as the new refinanced loan does not exceed the amount of the refinanced indebtedness.

The deduction for interest on Home Equity Lines of Credit has been eliminated which applies retroactively.  However, the new tax law did not modify the definition of “acquisition indebtedness” and so interest on a Home Equity Line of Credit that was used to “construct or substantially improve” a qualified residence continues to be deductible.

Conclusion:  Worse for Taxpayers since the qualifying indebtedness was reduced from $1M to $750K for debts incurred after December 15, 2017, and indirectly due to the increase in standard deduction plus the elimination of deductions of home equity lines.

Depreciation of Real Estate:

Prior Law:

The cost of real estate “used in a trade or business” or “held for the production of income” must be capitalized and deductions made over time through annual depreciation deductions over 39 years (for non-residential) and 27.5 years (residential) using straight line depreciation.

Certain leasehold improvement property, qualified restaurant property and qualified retail  improvement property can be depreciated over 15 years.

New Law:

Same recovery period for residential rental real estate and non-residential.  However, the previous exceptions for qualified leasehold improvements, qualified restaurant property and qualified retail improvement have been modified and consolidated so that they each must meet the definition of a “qualified improvement property” which is then depreciated over 15 years.

Conclusion:  Nominal change

Capital Gains:

Current Law:   Capital Gains rates apply to any net gain from the sale of a Capital Asset or from Qualified Dividend Income.   Capital Gains and Qualified Dividend Income are subject to rates of 0%, 15% or 20%.  Any net adjusted capital gain that would otherwise be subject to the 10% or 15% income rate is not taxed.   Any net adjusted capital gain that would otherwise be subject to the rates between 15% to 39.6% income rate are taxed at 15%, and amounts taxed at 39.6% income tax rate are taxed at 20%.

New Law:  No change in structure, except that the income tax brackets are modified and the amounts subject to these rates will be indexed for inflation based on the Chained Consumer Price Index (C-CPI-U) beginning the end of 2017.  For 2018, the breakpoints would be as follows:

Under $77,200 (married filing jointly) or $38,600 (single) of income, no capital gains

15% Rate:            From $77,400 married filing jointly ($38,700 for single)

20% Rate:            From $479,000 married filing jointly ($425,800 for single)

Conclusion:   Generally better for investors due to the new tax brackets and indexing for inflation.

Exclusion on Gain on Sale of Personal Residence.

No change.  The rule allowing for an exclusion from capital gains in the amount of $500K married ($250K single) for sale of the personal residence used as such for two out of the last five previous years remains.

1031 Exchanges:

Current Law:  No gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged for like kind which is held for productive used in a trade or business or for investment.

New Law:  For transfers after 2017, gain deferral allowed for like kind exchanges of real property only, but real estate held primarily for sale (i.e. flips) would not be eligible.   This applies to exchanges completed after December 31, 2017.  However, so long as the relinquished property is disposed of prior to December 31, 2017, the non-recognition provisions of the prior law applies.

Purchasing Homeowner’s Insurance- Strategies & Pitfalls

December 13, 2017 Asset Protection, Business planning Comments Off on Purchasing Homeowner’s Insurance- Strategies & Pitfalls


People who have read Mark Kohler’s Lawyers are Liars know that our philosophy with respect to asset protection is the “multiple barrier approaches” to put as many barriers as you can between you and someone who would sue you.  For owners of real estate, one of primary asset protection barriers is your homeowner’s insurance policy.

No insurance policy will cover all risks under any circumstance, and so it is important for owners of real estate to request, understand and procure the right policy for their situation.   Unfortunately, getting the right policy tailored your situation may not as easy as just calling your insurance agent and getting whatever they recommend, but requires a careful understanding and analysis of risks that can be protected by insurance, but most importantly making sure your policy actually covers those risks.  Your insurance agent should assist you in deciding on appropriate coverage, but remember that you, not the agent, knows this property the best and so it is your job to communicate the risks and perils on the property to the agent.   Some guidelines that can help maximize coverage include the following:

Tip 1. Make sure you are Dealing with a Licensed Insurance Company or Agent.Both Insurance Companies and Agents are generally licensed by the state and their information can be found online at the insurance department for the state.   Most state insurance departments have resources online to assist you in purchasing the right insurance and make sure that the person or company you are dealing with specializes in that specific area of insurance.

Tip 2. Understand What Type of Risks and Coverage You Need.Every property is different and may entail different risks.   The type of insurance will also depend on whether the property is used as a personal residence, long term versus short term rental, or a condo.    In general, homeowner’s insurance is designed to protect against risks that are outside the control of the owner, such as rain, wind, fire, vandalism, pipe bursting, falling objects, theft caused by breakage of glass, etc.   It generally does not cover risks that are within the control of the owner or occupier, such as flooding caused by drain stoppages, mold, toxic materials, pests, damage or injury resulting from deferred maintenance, intentional criminal acts, etc.  Flood and earthquakes generally require a separate policy. A typical homeowner’s policy will generally classify coverage for (1) Dwellings or other structures, (2) Damage to Personal Property, and (3) Liability coverage.   Knowing what you are specifically looking for in the form of coverage BEFORE you shop for insurance will help ensure that the actual coverage you buy matches your expectation.  An insurance agent will typically gather some specifics about your property and (if your lucky) also have a conversation with you regarding appropriate coverage, and based on that alone will make a recommendation of coverage most likely generated from a computer. The insurance agent will rarely have seen the property nor have any idea of any unique risks existing on the property and so it is your responsibility to discuss any unique risks on the property.

For example, for coverage for “Dwellings,” you want to know, from as reliable a source as possible, the estimated cost to repair or replace the structure with like kind and materials in the location where the property is located.  Construction costs vary depending on the location and the actual costs are often higher than what most people think.  Make sure you understand terms used by your insurance company such as the difference between “Actual Cash Value” versus “Replacement Cost” or “Guaranteed Replacement Cost,” with the understanding that insurance companies may define these differently.  For Personal Property, you want to make sure that important items of personal property are covered, how much they are actually worth, and create an inventory or snapshot of your personal property.

Most people are unaware that homeowner’s policies also provide coverage for personal (not business) liabilities that occur outside of the home.  For Liability Coverage, especially for rentals, you need to be very precise as to what your expectations in terms of what are the most horrible things that could cause significant injuries on the property what the appropriate amount of coverage would be.    Create a list of all the risks and perils that are important for the property (e.g. pools, dogs, trees, neighbors???) so that you can address these with the insurance agent.   Also, understand or ask how the deductible amount or other discounts such as alarms or other safety features will impact the premiums.   Consider what the differences in premiums would be if you increased the coverage especially if you have higher net worth as the premium increase for added coverage may not be as much as you think.   Look online for tips from state insurance departments websites such as insurance.ca.gov, or consumer-oriented websites like www.insuranceconsumers.com   for issues and topics that can help you understand what risks and perils you should be aware.

For condos or other common interest developments, there is often a master HOA policy from the homeowner’s association which generally covers the common walls, areas, and roof.  There may be separate policies for earthquake and flood.  Obtain copies of these policies and consider contacting the insurance agent to inquire about any gaps in coverage. The master HOA policy typically does not cover your interior condo unit and so a separate HO-6 is recommended to cover risks occurring from the “walls in.”  Since condo units often have shared walls, make sure you understand how risks occurring in these shared walls, in particular, water damage will be covered as this type of damage is often tricky to determine who should be responsible in the event of a loss.

For landlords (whether long term or short term), there are different policies depending on the use of the property and so make sure you get the proper policy for your specific use of the property. If you change the use of the property, for example, a personal residence to a long term rental, or into a short term rental, you’ll need to get a different policy to cover the different risks involved with the different use of the property.

Tip 3. Keep Detailed Notes of Your Communications with Insurance Representatives and Confirm, Confirm, Confirm. Although the nature of the relationship between the insurance agent and insured could vary depending on laws of the state and whether they are working for the insurance company or an insurance “broker,” you want to be very clear with your insurance representative as to what coverage is important to you, and any specific requests or expectations of coverage should be made or confirmed in writing to the insurance representative.  Ask and confirm with the agent in writing any specific exclusions from the policy.  In other words, if the agent makes a representation of coverage to you that is important, send a confirmation of that representation in writing (e.g. email, fax, etc.) so that a record exists confirming your expectations.  Better yet, ask the agent for a copy of the policy beforehand.  Most agents won’t volunteer this but any agent that has been doing this for any amount of time should have this handy.   Keep copies of everything, including advertisements and marketing as that information could be relevant in a coverage dispute.   If you’re not sure about the type or amount of coverage you need, ask the insurance agent for their opinion and confirm this opinion in writing.  An insurance agent who makes a representation to you concerning coverage could be bound by that representation even if it doesn’t appear in the policy so it is important to document all communications with the agent to hold them accountable for what they say.

Tip 4. Read Your Policy. I’m not talking about the 1-2 page “Declarations Page” that is only designed to show proof of coverage, but 20-30 page insurance “Binder” or “Policy” that contains the details of the actual coverage and exclusions.  No one really enjoys reading insurance policies and don’t be surprised or embarrassed if you don’t understand what you are reading.  It is a well known fact that insurance companies intentionally make their policy language difficult so as to create ambiguities as to their coverage responsibility.    Nevertheless, don’t let the first time you read the policy to be when you need to file claim.   Get ahead of it beforehand which will give you the perfect opportunity to ask questions and to clarify coverage with the insurance agent before a claim arises (See #2 above).   Be assured that if a claim is ever made, the adjusters and defense attorneys will be combing through the policy language with a fine toothed comb to try and evade responsibility.   If you do ask questions about the policy language, don’t be surprised if the insurance agent initially doesn’t understand what the policy says either as that is quite often the case, but make sure you get an answer to your questions in writing.

Tip 5. Coverage for an LLC.For those of you who own rental property in an LLC, check with your insurance agent as to what they would require to add the LLC as an additional insured.  Some companies will simply add the LLC as an additional insured in addition to the owners.  If your insurance agent tries to sell you a different policy such as a commercial policy, consider getting a second opinion, and again, do not rely merely on the verbal assurances of your agent, but confirm it in writing.   If you have a mortgage, be aware that some lenders may periodically ask for proof of coverage, and so there are possible due on sale implications for adding an LLC as additional insured.

Getting the right insurance coverage should be one of your front line defenses in your overall asset protection strategy.  Doing your homework beforehand, exercising proper due diligence during the process, and making sure there is a paper trail of your dealings with the insurance company will help ensure that there will be coverage in the event of a loss.

The New “Centralized Partnership Audit Regime” – A Seismic Shift or Much Ado about Nothing?

October 31, 2017 Business planning, IRS, Tax Planning Comments Off on The New “Centralized Partnership Audit Regime” – A Seismic Shift or Much Ado about Nothing?

An article on IRS audits…just what you needed to read before going to bed tonight, and I’m not kidding. Now, don’t be embarrassed if you haven’t heard of the Centralized Partnership Audit Regime (“CPAR”). If you think it sounds like something out of a George Orwell novel that only CPA’s and Tax Attorneys care about – well then, you’re half right. It’s not from Nineteen Eighty-Four. It is a real thing; the sort of thing people in my profession like to bring up when they’re trying to sound smart at cocktail parties – the most boring cocktail parties EVER.

Anyway, despite the sleep-inducing name, the CPAR is something many of our clients need to be aware of – namely clients who file (or should be filing) an annual Form 1065 Partnership Tax Return. So, if you are involved in a partnership, try to stay awake – this is for you.

A little background: The CPAR was enacted into law by the Bipartisan Budget Act of 2015 (“BBA”). As with most federal laws, the statute itself is nice and all, but the real meat comes in the form of the administrative rules implementing the law. The Proposed Rules for the BBA were introduced earlier this year, and barring something really crazy (which can’t be ruled out in the Washington D.C. of 2017) they will go into effect for all tax years beginning on or after January 1, 2018.

In a nutshell, the CPAR will replace the rules that currently govern partnership audits (which come from the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). The intent of the CPAR is to make it simpler and easier for the examine partnerships, particularly large partnerships with multiple tiers or levels of ownership.

So, What’s New in the CPAR?

1) “Partnership Representative” Replaces “Tax Matters Partner”: Currently, a partnership is required to designate a “Tax Matters Partner.” This is typically done in an Operating or Limited Partnership Agreement. While the Tax Matters Partner can bind the partnership in connection with an audit, it cannot bind the individual partners. In addition, a partner who is not the Tax Matters Partner has certain rights during an audit, including notification rights and the right to participate in the proceedings.

Under the CPAR, the Tax Matters Partner is replaced by the concept of a “Partnership Representative” who is the sole point of contact between the partnership and the IRS. Unlike with the Tax Matters Partner, all partners and the partnership itself are bound by the actions of the Partnership Representative and no one other than the Partnership Representative is vested with a statutory right to participate in a partnership-level audit proceeding. Neither state law nor the partnership agreement itself may limit the authority of the Partnership Representative when it comes to an audit.

Under the CPAR, a partnership must designate its Partnership Representative in the partnership’s annual tax return. Unlike with the Tax Matters Partner, the Partnership Representative may or may not be a partner. The only hard and fast requirement is that the Partnership Representative have a “substantial presence” in the United States. The Partnership Representative designation must be made separately for each tax year and is effective only for that year. One Orwellian tidbit here is that if you fail to designate a Partnership Representative, the IRS is allowed to pick one for you!!! This is a little scary. Again, the Partnership Representative does not have to be a partner in the partnership – so it is at least conceivable that the IRS could appoint as Partnership Representative a non-partner third-party who then becomes the sole point of contact for the IRS regarding the audit and is vested with full authority to bind the partnership in an audit.

Given the above, under the CPAR it becomes more important than ever that you don’t blow off your annual 1065 Partnership Return. File the return on time and name a Partnership Representative! A pretty simply recipe to avoid IRS trouble. I have seen some chatter online about amending operating or partnership agreements to make this designation. However, while this is certainly a good place for the partners agree in writing as to who will be designated the Partnership Representative (or how the Partnership will choose the Partnership Representative), the actual designation must be made on the filed partnership return.

2) “Imputed Underpayment” and the “Push Out Election”: These will become important if you are ever in an audit, but we will not be going into detail here. They are technical changes regarding how the IRS notifies the partnership of an amount owed after audit, and how and when a partnership can decides to pay what is owed at the partnership level, or “push out” that liability to the individual partners.

Am I Stuck with the CPAR?

The short answer is “not necessarily.” Partnerships with 100 or fewer partners – all of whom are considered “Eligible Partners” by the IRS can opt out of the CPAR. Eligible Partners are defined as:

  1. Individuals
  2. C-Corporations
  3. S-Corporations
  4. The Estates of Deceased Partners

So, if any partner is a trust, a disregarded entity (such as a single-member LLC), or another partnership, opting out is simply not an option. Just like naming a Partnership Representative, opting out of CPAR is done annually, when you file your 1065 partnership return. In order to successfully opt out, you will need to provide the IRS with the name, tax ID number, and federal tax classifications of all partners. Also, the election to opt out only applies to the year to which your tax return applies, so it will need to be done each year going forward.

If you opt out, the IRS will be required to initiate deficiency proceedings at the partner level (instead of the partnership level) to adjust items associated with the partnership and thereby assess and collect any tax that may result from those adjustments. This makes life harder for the IRS, and for this reason, it will likely make sense for eligible partnerships to opt out of CPAR – if they can. The decision to opt out can be made in an operating or partnership agreement, but will need to be submitted to the IRS each year as part of filing the 1065 partnership return.

Because opting out makes a partnership audit more difficult for them, the IRS has stated its intention to closely scutinize any partnership’s decision to opt out. This will include analyzing whether the partnership correctly identified all of its partners. For example, the IRS could conduct a review of a partnership’s partners to confirm that none are acting as nominees or as agents for a beneficial owner.

At the end of the day, for most of our clients, the shift to CPAR will not be noticed. Most partnerships don’t get audited, and if they do, the partners work together to get through it. However, by taking the steps to opt out of CPAR (if eligible), or to make sure a Partnership Representative is named (if opting out isn’t a possibility), you can avoid running into a CPAR problem that could have otherwise been avoided.

8 Core Tax Concepts Every Entrepreneur Needs to Know

October 24, 2017 Business planning, Corporations, Small Business, Tax Planning Comments Off on 8 Core Tax Concepts Every Entrepreneur Needs to Know

Of the many virtues that entrepreneurs have, one such virtue is the desire and ability to get as much information and knowledge as they can by reading books, attending speaking events, researching on the internet, etc. However, ‘taxes’ aren’t one of the topics entrepreneurs seek out, and it’s for a justifiable reason.

Many believe the topic of taxes to be either too boring or overly complicated, and it typically is when presented improperly.  Yet, so many business owners are starving and anxious to learn tax and legal principles. Inspired by those teachers of tax and legal topics that make it truly interesting, I have tried to summarize in this article the top 8 Core Tax Concepts that every entrepreneur needs to know:

  1. The IRS treats different types income VERY differently. This principle is at the CORE of so much of our advising. For example, income you make in your operational business is NOT taxed the same as income you make in your rental real estate “business”. So as you read books, attend speaking events, etc., keep in mind that the principles taught (and the advice if you’re talking to your tax professional) are going to depend in large part on the TYPE of income.
  2. Corporate Income Tax versus Pass-through Entities i.e. LLC’s, S-corps, Sole Props, Partnerships. A pass-through entity is a business entity that does NOT pay income tax at the “entity” level but rather, the income tax liability is passed-through to the owner(s) of the business (hence avoiding the double taxation that is often associated with c-corporations). In other words, the manner in which income generated by an LLC taxed as a sole proprietorship or partnership is very different than a c-corporation. There are a lot of false assumptions that entrepreneurs have about their tax situation and a lot of that comes from internet research – not because the article was bad, but because they simply misapplied it to their situation. For example, if an entrepreneur whose business is taxed as a partnership comes across an article about business taxes is going to become very confused if the articles is referring to corporate income taxation, unless they REALIZE the article is not referring to “pass-through entities” such as theirs. The result would be that if that entrepreneur tried to apply the principles in that article to their business, it would be confusing and likely not helpful.
  3. There are all sorts of taxes – It’s important to keep them straight. If you regularly read books, attend speaking events, listen to podcasts, etc., and you hear taxes, don’t assume it’s ALWAYS about income taxes. For example, technically, self-employment taxes, which is discussed frequently, is different than income tax. And when you’re in the world of small business, real estate, estate planning, etc., trying to get as much “self-learning” as you can, there’s even more types of tax out there which may or may not apply to you. For example, there’s income tax, self-employment tax, estate tax, property tax, gift tax, payroll tax, sales tax, and many more. So always make sure you’re aware of which type of tax that author, or speaker, etc., is referring to.
  4. Generally, a tax-write off is whatever costs and expenses are customary and appropriate in your industry and helpful to your business. Actually, the verbiage in the tax code is “ordinary” and “necessary”, but thanks to the courts, those words have been defined to mean “customary” and “appropriate”. So if you’re a house flipper out genuinely trying to make money in your business and you have costs and expenses along the way, you’ll typically be able to write off any and all expenses that are customary and appropriate for someone in the house flipping business.
  5. Some business “write-off’s” must be amortized over time. With some exception, when you/your business buys equipment or assets, generally that cost IS deductible BUT will have to be spread out or amortized over multiple tax years based on the IRS schedule for that particular asset/equipment.
  6. Basis. One of the core principles of taxation is that your cost to acquire an asset is called your basis, and that’s important because when you decide to sell that asset, the tax consequences of that transaction will be determined “based” (bad pun) on the selling price of the asset/equipment over and above the basis (note: by the time you sell that asset, the basis will have adjusted and so it’s referred to as your “adjusted basis”). That excess amount, if any, is a capital gain and is typically taxed differently than your “ordinary” business income. Selling an asset in your business (or the business itself) can become quite complicated, but so long as you remember this core tax concept, it will help you when discussing transactions with your tax professional(s).
  7. Most tax deductions are “entity-agnostic”. Most of the tax write-off’s that a typical entrepreneur are going to have will be available to them regardless of whether they operate as a sole proprietorship, LLC, or corporation. For example, if you’re trying to claim expenses associated with your business that you incur in the course of traveling, meeting with clients, etc., those costs will generally be deductible regardless of whether you operate your business as a sole proprietor, partnership, s-corporation, or c-corporation.
  8. Don’t let the “tax tail wag the dog”. I’m not suggesting your business is a “dog”, but if your business doesn’t need a certain expense or you wouldn’t buy a certain expense otherwise, it usually doesn’t make sense to incur such an expense simply to claim another tax write-off. For example, it’s exciting when you read a book or attend a speaking event that mentions a certain tax write-off, but if you don’t need that expensive new piece of equipment, particularly if you’re just starting out in your business, that huge expense, notwithstanding the fact that it is deductible, could run your business into the ground.

In sum, keep reading, attending speaking events, listening to podcasts, but if you will keep these core principles in mind you’ll have much better success in implementing some of the strategies you read/learn about. This article is not intended as legal or tax advice. If you’re an entrepreneur or potential entrepreneur and have tax and legal questions, please contact our office.

Creative Planning Options with a Revocable Living Trust

October 17, 2017 Business planning, Estate Planning, Uncategorized Comments Off on Creative Planning Options with a Revocable Living Trust

Estate planning is something most know they should do, but most American adults simply haven’t gotten it done.  In a survey available from AARP,  60% of American adults do not have an estate plan.  The number gets even higher for some minority populations.  In most cases, this is simply due to procrastination that “I just haven’t gotten around to it.”  Many people that I speak to as a lawyer simply don’t understand the consequences of passing away without an estate plan.

One of the primary reasons for a Trust is to avoid probate, which is a court supervised process for the distribution of a decedent’s assets (especially real estate) when a person dies without a trust.  However, the revocable living trust affords many creative planning opportunities that generally cannot be accomplished without a comprehensive estate plan.  Many individuals who have not consulted with a professional estate planner do not know the creative strategies that can be accomplished through a trust.  Examples of some creative planning opportunities include:

Planning for the Disabled

In general, eligibility for certain need based government benefits such as disability or SSI have restrictions based on income and assets.    Many people mistakenly assume that if they have a child or other dependent that is disabled or who otherwise relies on government benefits, that they should disinherit these disabled dependents in order to ensure that the dependents continue to qualify for disability benefits.  Disinheriting a dependent entirely just so they can continue to get disability represents a fundamental misunderstanding of the available options and often times simply indicates bad planning.  A “special needs trust” is a special type of trust that can allow a dependent to potentially receive funds and benefits from the trust without interfering with government benefits.    These types of trusts require very precise terms and conditions so that any benefits from the trust do not disqualify the dependent’s eligibility for the particular government benefit to which the dependent is or may be eligible.

Asset Protection for the Beneficiaries (Your Kids/Heirs)

A trust can provide significant asset protection for children who have difficulties handling money or who are otherwise high risk.  Most states allow trusts to contain “spendthrift” provisions which can restrict the ability of creditors of the beneficiary from reaching the beneficiary’s interest in the trust.  In general, a creditor can only reach assets from a debtor which the debtor himself/herself can reach.  Different states may have different rules and there may be exceptions for certain types of creditors (for example, claims by a spouse for alimony or child support may not be protected by a spendthrift clause).  In addition, the protection of the spendthrift provision general applies only to the beneficiary, not the original creator (i.e. the grantor) of the trust.  However, the spendthrift provision could be an effective planning tool to provide for your beneficiary without risking that the trust could be subject to that beneficiary’s creditors.

Planning for Blended or Non-traditional Families

Lets face it, our conception of the family unit from generations ago is constantly changing and evolving.   Many of us are now raised in blended families, or by individuals who were not our blood parents, or live in various types of family arrangements.  In most cases, the law has not evolved in recognition of these different family arrangements.   A primary purpose of the revocable living trust is to dictate how your loved ones will share in your legacy.  With a Trust, you can help ensure that certain individuals do (or don’t) share in your legacy.    Otherwise, leaving this decision up to the laws of the state could result in people you care for being cut off from your estate.   The most common example is someone who divorces and remarries but has children from the original marriage.  In many states, if that person passes without an estate plan (will or trust), the estate passes to the surviving spouse and the children from the first marriage are cut off.   Proper planning using the revocable living trust will help ensure that the people you wish to benefit will actually receive those benefits.

Planning and Supporting a Legacy

A trust is a very flexible document and can be drafted in different ways to support the ones you love but not allow the assets to be wasted.  Do you want to provide support to a grandchild, but not have it affect their eligibility for financial aide for college?  Do you want to help a child start a business, but not unless he/she first gets a college degree?   Do you want to assist your children to buy their first home, or finance their wedding?  A revocable living trust allows you to set terms and conditions for your generosity to ensure that your gift is used the way you wanted it to be used, and for nothing else.

Of course if you’re one of those people who feel that “I can’t take it with me so I’m going to spend it all now,” then perhaps these planning opportunities are not for you.  But for those who wish to leave a legacy behind for your loved ones (or loved causes) future and want it protected and preserved for this purpose, the revocable living trust can provide infinite possibilities to secure your legacy.

Essential Tax & Legal Tips for the NEW Business Owner

August 28, 2017 Business planning, Law, Tax Planning Comments Off on Essential Tax & Legal Tips for the NEW Business Owner

Starting a business is a process.  It is MUCH more than filing the one or two page articles/certificate of formation with the state.  At the same time, it doesn’t have to be so complicated and overwhelming that you never start.   Further, not only is starting a business a process, it’s a process that is unique to YOU.  It is not a cookie-cutter one size fits all proposition.  What your business and YOUR situation require may be completely different than anyone else you might know who is self-employed.  Having said that, here are 8 tips that apply to all businesses, but how to USE these tips will be different for each business owner:

  1. Operate out of and properly maintain the appropriate entity formation for YOUR situation. While it is true you can operate your business as a sole proprietorship, I think it’s generally better to operate your business out of an entity such as an LLC or corporation.  First, I think it has a positive impact on your mindset as a business owner in that it makes you feel more “legit”and others will see you the same. More importantly, it is always better to operate your business out of an entity such as an LLC or corporation as those companies prevent liability of the business from extending to the owners.  Lastly, operating out of an entity can in certain situations produce tax savings such as when operating out of an S-corporation to save self-employment taxes. This is generally recommended for operating businesses who have $30-$40k net annual income.
  2. Make sure you have a partnership/ownership agreement if there are other owners. If you have somebody that you trust to own and run your business WITH YOU, that’s a great thing, and hopefully you continue to have a great business relationship with that person(s).  But don’t let that be a reason to NOT get your relationship in writing through a written agreement that you both/all would sign to memorialize the rights and obligations of each other.  If the business fails or one of the owners wants out or isn’t “pulling their weight” and you didn’t address this in writing BEFORE the crisis/event has occurred, that friendly business partner could wind up AGAINST YOU.
  3. Embrace bookkeeping. Embrace the fact that bookkeeping is one of the keys to maximizing tax write-offs and commit to either obtain the right training to do it yourself OR see the value in outsourcing it to someone who knows what they’re doing.  Maybe your strength as an entrepreneur is the marketing/sales side of business, or you have the relationships to be successful, but when it comes to taxes, you must keep good records, and for all your strengths, if you’re not organized, you’re going to get killed in an IRS audit.  So either learn to be organized with your records in terms of tracking expenses and use a good bookkeeping software (Mark Kohler offers a great set of videos that train on how to use Quickbooks), or outsource it to someone else who is good at it so you can focus on what you do best. The clients who embrace bookkeeping usually have more write-offs and deductions come tax-time as they rarely miss an opportunity to expense something.
  4. Have periodic tax and legal consults with your attorney and CPA. Unfortunately, many small business owners don’t use a business attorney ever, and maybe only meet with their CPA once a year, assuming they even use a CPA.  I think the cost of meeting with a good business attorney and CPA at least twice a year is worth the cost.  Prevention is much less expensive than the cost of getting “sick”, whether “sick” is an unnecessary amount or risk exposure that leads to a lawsuit, or whether “sick” is failure to maximize tax write-offs and you’re paying more than necessary to Uncle Sam, OR, maybe without a good CPA you’re TOO aggressive on your taxes or even worse, you don’t file a return at all and the IRS comes knocking.  Not to mention meeting with your attorney and/or CPA is a tax write-off!  On the legal side, it is good to get periodic “checkups” on how your business is structured, what has changed, what’s coming up that is new in your business, etc., so that your business attorney can guide you on mitigating your risks and protecting against liabilities.  On the tax side, it’s good to also get periodic “checkups” to talk about tax strategies and which ones you aren’t maximizing or implementing, or which ones you’re doing wrong that is going to be a problem in an audit, i.e. health care, paying kids, auto, home office, dining, entertainment, travel, tax deductible contributions to retirement plans, owning real estate, etc.
  5. Be sure to have adequate insurance for your business. This legal tip is not new or cutting edge by any means, but the failure to follow it could be catastrophic to your business.  A good insurance broker can help a great deal to match up the appropriate amount of insurance (in terms of amount and policy types) for YOUR business.   You don’t want to spend TOO much of your business income on insurance premiums but if you don’t have any insurance, if/when a liability comes up in your business, and you don’t have an appropriate insurance policy to divert that financial responsibility for that claim/liability to an insurance company, it puts the full force of that claim or liability on potentially ALL of the assets and income of your business.
  6. Make sure to use contracts in your business and don’t rely on verbal conversations or handshake deals. You may have heard that under the law in most situations verbal contracts are enforceable.  That doesn’t mean you should RELY on them, especially with the core aspects of your business i.e. your clients, your vendors, your business partners, etc., you want to properly memorialize the agreement IN WRITING.  This will make it SO much easier to prove your case in court if the other party violates/breaches the written contract versus trying to prove they breached/violated a contract that is not in writing and signed by all parties.  You should have a good service contract or something applicable that is provided to your customers.  This not only helps with enforcing any liabilities or claims you have against them (non-payment for example), but it also is REALLY helpful to clarify the SCOPE of what your business WILL do for them and what your business will NOT do for them.  If you don’t clarify that in writing, you have no idea what your customer assumes or expects, so even it doesn’t result in a lawsuit, it can create a rift between your business and that client and result in bad press about your business on social media, etc.
  7. Make sure you are properly characterizing your workers (independent contractor v. employee). There is a temptation for the small business owner to view/consider ALL of their workers as independent contractors.  The small business owner loves to do that because there’s no payroll tax, no added costs for worker’s compensation, unemployment, employee benefits, etc.  Unfortunately, the federal and state taxing authorities do not take YOUR word alone that your workers are actually independent contractors.  IF you improperly classify workers as independent contractors and the government (state or federal) determines they are employees, you will have fines and penalties.  Don’t misunderstand, you can have workers that ARE independent contractors, so long as they are TREATED as independent contractors, and the key word there is “independent”.  If you’re going to micro-manage what they wear, when they work, how they work, where they work, etc., that doesn’t sound very “independent” and it sounds at lot like an employee, which it is sometimes necessary to have that much control of your workers, but you can’t have it both ways, if you treat them like employees, you have to accept that it comes with things like payroll taxes, unemployment, worker’s comp, etc.
  8. Have an exit strategy (including an estate plan). Understandably your primary concern is getting the business STARTED, so you might think it would be unproductive to think about an exit strategy so early in the “game”, but it is so important to have that in your mind.  Do you want to grow the business and sell it soon as possible or hold onto it and pass it loved ones, or maybe you want to buy out your partner’s ownership (or vice versa).  There are many unknowns that make it difficult to have any certainty about what WILL happen, but it’s very productive to consider the ways in which it COULD happen and form an opinion on what seems most appealing to you.  But REGARDLESS of what your exit strategy is, you should make sure your business ownership and estate plan is coordinated.  Even if you plan to sell the business as soon as possible, and you have no plans of owning the business for the long-term, the spontaneity of death requires that even in that situation, your business ownership be coordinated with your estate plan.  Don’t forget about incapacity either.  This could mean you have power of attorney documents in your estate plan that contemplates ownership/operation of your business if you become incapacitated.

In sum, your business needs you as the business owner to make sure your business is healthy from both a tax and legal perspective.  These tips are a great starting point to make sure that happens.  Our office is available to assist and would love to help you and your business with implementing these and other tips specifically to you and your business.

Legal Tips for Wholesaling Real Estate

July 18, 2017 Business planning, Real Estate Comments Off on Legal Tips for Wholesaling Real Estate


Many real estate investors regard wholesaling as a way to learn how to evaluate deals and develop your real estate network.  It is also a method to profit from investing in real estate without requiring significant up front capital.  Wholesaling is a strategy whereby the wholesaler enters into a purchase contract with a seller of real estate and then assigns the purchase contract to another third party who will typically rehab the property and flip it for a profit (at least that is the goal).

Although most investors regard wholesaling as involving less risk than, for example, the flipper who is rehabbing and selling the property, there are always risks in any transaction, and so the purpose of this article is to identify some of the common legal issues to look out for in your wholesale deals.  This article is not designed to teach you the strategies for being a successful wholesaler, such as how to find properties, how to approaching homeowners, etc., but instead, focuses on some of the legal aspects of wholesaling that investors should be aware.

Licensing Issues:  Be aware of potential licensing requirements for your state:  Different states define the scope of activities that require a license differently and so you should be aware of what activities are regulated by your particular state and act accordingly.  For example, California generally defines a real estate broker as someone who sells, buys or negotiates for another with the expectation of compensation.  If your activities in California meet these elements, then be advised that you may need to be licensed as real estate agent.   Any questions regarding state licensing requirements should be directed to an attorney with knowledge of the requirements of that state.

LICENSING ISSUES

Understand the Rules & Procedures Governing Real Estate Transactions in your State:  Many states have unique laws, forms or disclosure requirements for real estate purchase transactions.  For example, in California, a seller is required to provide a transfer disclosure statement and if the property is in foreclosure, there are additional required disclosure requirements.  Failure to abide by the rules that are required in your state could cause legal issues down the line in your transaction.  You don’t want to have a seller or your end buyer come back later raising an issue with the transaction that could have been avoided had you followed the proper procedures for real estate transactions in your state.

DISCLOSURE & TRANSPARENCY

Be Transparent as to your Role in the Deal:  If your intent is to wholesale the property during escrow, the homeowner should be well aware in writing that your intent is to assign the deal to a third party for profit, and the contract language should give you a unilateral right to assign without requiring the consent of the homeowner.  Most standard form purchase agreements you get from realtors do not have this language and so an amendment or specially prepared form may be necessary.   On the buyer’s side, you should be very clear in your written agreement with the end buyer as to what you will be responsible for and what will be the responsibility of the end buyer.  For example, are you going to do an analysis of after repair value (e.g. running comps and estimating repair costs)? Run title?  Do an inspection?  What happens to your earnest money deposit once you assign the contract to the end buyer?   Your agreement should clearly specify in detail what your specific obligations are in the deal, where your obligations in the deal ends, and what the end buyer is expected to do to close the deal.  It is better to have these details on who does what expressed clearly in writing rather than rely on assumption.    Most importantly, you should include language that fully releases you from any further obligations or liabilities in the deal to ALL parties once you complete the assignment to end buyer.

CONTINGENCY CLAUSES 

Make Sure Your Contingencies are Clear.  This should go without saying, but depending on the specifics of the particular deal, it is important to properly set the expectations early for all the parties involved.   I typically advise clients who wholesale properties to have a good understanding of what their potential end buyers want in a deal in terms of location, spread, contract language, due diligence items, etc.  I also encourage individuals wanting to pursue wholesaling to develop relationships with rehabbers as early as possible, preferably before getting a property under contract, so that they have a good idea of whether they will be able to successfully complete the assignment as intended.    It is highly recommended to have your team of professionals such as realtors, contractors, appraisers, etc. in place to provide accurate feedback as you analyze the merits of your deal.  Finally, have an attorney’s fees clause in your agreements so if you have to pursue legal action to enforce the agreement or your contingency clause, you preserve the right to seek your attorney’s fees.

Of course, making sure you are covering yourself legally is just one detail for successful wholesaling.  Finding the right properties, learning to negotiate with homeowners, and developing a network of professionals to assist you during the wholesaling process are all necessary aspects for successful wholesaling, but making sure that you are covering your bases legally will help ensure that your wholesale deals proceed smoothly with minimal possibility for conflict.

Ask Your Attorney if a “Covfefe” Trademark Is Right for You

July 11, 2017 Business planning, Corporations, Law, Litigation Comments Off on Ask Your Attorney if a “Covfefe” Trademark Is Right for You

On May 31st, 2017, at 12:06 a.m. Eastern Time, President Donald Trump unleashed the following tweet: “Despite the constant negative press covfefe.” No one has been able to definitively crack the code (if there is one) as to what “covfefe” actually means. The President took down the tweet six hours later and replaced it with a tweet saying: “Who can figure out the true meaning of ‘covfefe’??? Enjoy!”

Predictably, the word “covfefe” immediately went viral on social media, with several twitter users encouraging their followers to “ask your doctor if Covfefe is right for you” and others thinking it’s what you’re supposed to say when someone sneezes. In the following days and weeks, covfefe has taken on a life of its own and become a bit of a cultural phenomenon. Late night hosts have debated whether President Trump had some sort of minor stroke or simply fell asleep when he typed covfefe, and Hillary Clinton was asked about what she thought it meant in a recent public appearance.

However, it’s not only comedians and 24-hour news channels that are making hay with covfefe. A Google search of “covfefe” reveals dozens of businesses ready to sell you apparel with hundreds of variations on the covfefe theme. To date, my personal favorites are “Make America Covfefe Again” and “What Part of Covfefe Don’t You Understand?”

A check of the U.S. Patent and Trademark Office (“USPTO”) databases shows that in the forty days since the covfefe phenomenon began, 34 trademark applications have been filed using the term. The products and services being tied to covfefe run the gamut from “advice relating to investments” to fragrances, toys, coloring books, and even sandwiches. As you might expect, four different companies have filed applications to use covfefe for beer.

However, easily the most popular application (there are about twenty of them) is to get protection for using covfefe on t-shirts, hats, and other apparel. One applicant for a covfefe apparel trademark even appears to have access to the inner circle of Trump advisors and confidants who know what covfefe really means – after all, its application is for: “COVFEFE – Carry On Vigilantly Fighting Evil For Ever.”

So, the question becomes: which of these applicants will win the coveted “covfefe” trademark for t-shirts? The answer from this trademark attorney is: very possibly none of them! Why? Because the USPTO will generally refuse an application as “ornamental” if what is submitted to the USPTO shows that the use of the mark is only decorative or ornamental. That is, if the use of the mark does not clearly identify the source of the goods and distinguish them from the goods of others – which is required for proper trademark use.

The USPTO’s number one example of “ornamental” use is when a quote is prominently displayed across the front of a t-shirt, such as “The Pen is Mightier than the Sword.” The USPTO’s position is that most purchasers would perceive the quote as a decoration, and would not think that it identifies the manufacturer of the t-shirts (the source of the t-shirts could be Hanes® or Champion®, for example, as shown by the neck-tag).

Other examples of “ornamental use” put out by the USPTO are:

  1. A logo on the front of a hat. When the logo is associated with an organization, like a sports team, which did not manufacture the hat.
  2. Stitching designs on the back pocket of a pair of jeans. Purchasers are accustomed to seeing embellishments on jean pockets and would not think this embroidery design identifies the source of the jeans.
  3. A floral pattern on tableware or silverware. A purchaser would likely see this pattern as merely decorative and would not think it identifies the source of the tableware or silverware.
  4. The phrase “Have a Nice Day” or a smiley face logo. Everyday expressions and symbols that commonly adorn products are normally not perceived as identifying the source of the goods.

While there is no definitive place to affix a mark to goods to avoid an ornamental refusal, the location, size and dominance of a mark have a big impact on how the public perceives it. The USPTO has offered the following examples of proper non-ornamental trademark use:

  1. Discrete wording or design on the pocket or breast portion of a shirt. A purchaser would typically associate the small logo on a shirt pocket or breast area with the manufacturer or the source of the shirt.
  2. A tag on the inside of a hat or garment. A purchaser would associate a logo on the tag with the maker of the garment.
  3. Logo on a tag above the back pocket of a pair of jeans. A purchaser would typically associate this mark with the manufacturer of the jeans.
  4. A small logo stamped on the back of a dinner plate or bottom of a coffee mug. Purchasers are accustomed to seeing a mark used in this location to identify the source of the tableware.

Another way to get around an “ornamental use” refusal from the USPTO is to show that the mark has “acquired distinctiveness.” Long-term use in commerce, advertising and sales figures, dealer and consumer statements, and other evidence can be used to show that consumers directly associate a mark with the source of those goods. While this probably won’t work for the covfefe applicants (since the term has only existed for about six weeks), it could be an option in your situation.

The final option for the covfefe trademark applicants would be to move their applications to the “Supplemental Register.” Registration on the Supplemental Register doesn’t provide all the same legal advantages as registration on the Principal Register, but it does provide protection if and when someone applies for a conflicting mark later. Also, after five years of continual use, you can apply for (and in most cases will be awarded) registration on the Principal Register.

If you feel like you have captured “covfefe-like” lightning in a bottle, and want to talk about how to protect your name and/or logo, please give me a call at 435-596-9366 or shoot me an email at jarom@kkoslawyers.com.

Bitcoin Basics: What is Cryptocurrency?

July 3, 2017 Business planning, Law, Tax Planning Comments Off on Bitcoin Basics: What is Cryptocurrency?


Questions about Bitcoin have increased dramatically as investors have seen the price of Bitcoin rise from 30 cents per Bitcoin in 2011 to $2,550 per Bitcoin in July 2017. This article answers basic questions about Bitcoin and we’ll have two follow-up articles addressing IRA ownership of Bitcoin and about accepting Bitcoin in your business. Needless to say, there’s a “bit” of uncertainty when it comes to whether or not one should invest in Bitcoin (sorry –bad pun) but here’s a breakdown of the basics.

What Is Bitcoin And How Does it Work?

Bitcoin is one type of digital currency also known as crypto currency. Users of Bitcoin pay each other directly without traditional intermediaries such as banks or even governments using what is known as blockchain technology to effectuate transactions. First, you would install a Bitcoin wallet on your device and it will generate a Bitcoin address. When you provide your Bitcoin address, the person paying you can transfer funds to your address and into your Bitcoin wallet. This transaction and all transactions on the Bitcoin network are done using this blockchain technology, which is a ledger that tracks balances. Cryptography i.e. mathematical proofs that provide high levels of security are used to strengthen the security of the Bitcoin network. By the way, cryptography is not some untested technology – it is through cryptography that online banking is currently done. As a Bitcoin user, you would authorize a transaction using a secret piece of data called a private key. A transaction isn’t finalized until it has been mined, which is a confirmation process to ensure the integrity of the transaction. You can learn more at www.bitcoin.org. I will write another article regarding whether a small business owner should consider accepting Bitcoin as a form of payment.

Where Did It Come From And Is It Risky?

Bitcoin was created in 2008 by an anonymous creator. Many executives in the financial sector are cautious or even skeptical, but others are optimistic and confident that it is not going anywhere. Fidelity CEO Abigail Johnson believes in the future of digital currency and has been a proponent of Bitcoin.. One of the biggest complaints against digital currency is the lack of security/protection from hackers. JP Morgan Chase CEO Jamie Dimon has been a notable critic citing its use by criminals looking to transact outside of the traditional financial system. In 2015, a notorious online drug sales scheme was orchestrated using Bitcoin. There was an incident in Japan in 2013 in which digital hackers stole about $450M worth of Bitcoin. A similar incident happened in Slovenia in 2013. Other controversies surrounding Bitcoin include the disappearance of notable Bitcoin start-up companies Neo and Bee in 2014. In 2015 there were arrests when it was learned that Bitcoin company MyCoin was running a Ponzi scheme in Hong Kong. There have been quite a few money laundering cases here in the U.S. involving Bitcoin.

Should I Invest In It And How Do I Invest In It?

Most people investing in Bitcoin are using a relatively small portion of their investment portfolio i.e. I don’t know anyone who is investing most or all their “eggs” in the digital currency. A lot of people are excited about it, but like any investment, if you don’t time it right and/or you don’t know what you’re doing you can and probably will lose money. The concept, however, in simplistic terms is that you buy the digital currency at a certain price and sell it for more than you paid for it. There is the famous story of Kristoffer Koch who paid $27 in 2009 for 5,000 Bitcoins which has now been valued at almost $1M. Currently, 1 Bitcoin equals approx. $2,550 U.S. Dollars, so it would cost you over $10,000 to buy 4 Bitcoins right now. Over the last three or four years, the value of Bitcoin has continued to increase and it is the dramatic increase in value that has caused the recent stir and attention around digital currency investing. Others are attracted to Bitcoin as a protection against government currency. These investors fear a failure in the financial markets, which will dilute and may cause value declines in the dollar or other government currencies. These investors prefer to hold their Bitcoin directly, rather than through a fund.

Assuming you’ve done your research and are comfortable with the process, in terms of actually investing, one option is to invest in the Bitcoin Investment Trust (GBTC). GBTC is a publicly traded security that solely invests in Bitcoin. This allows an investor to use a traditional investment vehicle to realize gains (or losses) as the price of Bitcoin fluctuates without actually possessing and storing bitcoins. However, investing in bitcoin through the GBTC provides only a fractional value of the actual price of bitcoin and so in terms of ease and convenience, the GBTC is a good option, but at least for now, it’s not the best option to capitalize on the full value of Bitcoin. Coinbase, Inc. is another option – it is essentially a digital exchange where you can invest in Bitcoin as well as other cryptocurrencies (see below). Another option is to invest in actual Bitcoin through a self-directed IRA, which I will write about in another article.

What Are Other Types of CryptoCurrency?

Bitcoin is not the only form of digital currency – others include Litecoin, Peercoin, Primecoin, Namecoin, Ripple, Quark, Mastercoin, and Ether(Ethereum).

In sum, like any investment, it requires due diligence and a correct timing of the market(s). As you can tell, there have been some crazy tales of Ponzi schemes and fraud but also stories of incredible returns. In any case, I don’t think digital currency is going away anytime soon – I guess you could say that the stories in this article have been “tales from the crypt”-o currency (it was a stretch but I decided to go for it).