10 Jul Common Mistakes that Land Companies in Legal Trouble
The Department of Labor is constantly updating its rules and regulations, which creates an environment for businesses to regularly break the law without intent. Unfortunately, ignorance is not a defense that will hold up in court. In order to protect your business, it is important to be aware of some of the more common mistakes that land companies in legal trouble, as prevention will be the best defense.
Writing off personal expenses as business expenses is a fast way to attract negative attention from the IRS, as they do not take kindly to this practice. The IRS will issue stiff penalties to employers who cannot properly document their business expenses with reasonable arguments. In order for a write-off to qualify as a business expense, it must be necessary to the operation of your business. For example, if you use your car for work, you can expense the miles that are accrued for business purposes, but not for your daily commute to and from the office.
Cutting corners on workers compensation coverage to eligible employees not only harms office culture, but leaves the company vulnerable to expensive lawsuits and penalties. All too often, businesses will attempt to justify and avoid their workers’ compensation obligations, which will lead to audit penalties from the Department of Labor. Rather than attempting to skirt responsibilities, companies can make safety a top priority by increasing safety protocols to attempt to cut down workplace injuries. Safer work environments that lead to less injuries can result in reduced insurance premiums saving a business money, rather than losing it in costly lawsuits and penalties.
Purchasing Companies and Stock Options
An area where companies run into legal complications is when they purchase a company or stock option without registering the necessary capital gains taxes. Occasionally, investors attempt to write-off corporate investments, such as a $200,000 stock purchase, as a business expense rather than an asset purchase. The disregard for proper registration of the capital gain, and not paying taxes on it, will cause the IRS to pursue penalties.
Improper Classification of Employees
One of the more frequent violations companies commit is classifying employees as independent contractors. The DOL requires employers who have assent, benefit and control over their workers to be W-2 employees. While a misclassification can happen accidentally, some businesses try to avoid this obligation to cut costs by hiring a staff of independent contractors. The Department of Labor will issue incredible tax consequences and penalties from this practice regardless of intent.
Intellectual property is a slippery slope, and infringement on the copy of another entity can easily happen by accident. Using products, photos or brands without confirming if they are violating a competitor’s intellectual property can lead to significant consequences. Companies that have been in business for years are often inundated with lawsuits from competitors for brands or domains that are too similar.
Costly lawsuits can lead to significant damage to a business. The best way to avoid that is to remain abreast of the ever-changing regulations, and to ensure your company follows strong business practices. If your business is not large enough for a human resources staff, then working with a business attorney can be a valuable asset to the future of your business.