If you own your own company, you can skip a salary in favor of distributions, but the IRS still wants its share of the money you take home.

Erin, Kailua-Kona

Do shareholders have to take a salary in an S corp? Can they just take distributions? How about an LLC?

By Lenora Chu, CNNMoney.com contributing writer

In tackling your question, it’s important to first understand the difference between a salary and a distribution.

A salary is a payment by a business in exchange for services rendered. A distribution is a payment taken out of the profits or other assets of the organization.

There is no federal tax law requirement that shareholders of either an S corporation or an LLC pay themselves a salary, says Jonathan Moyer, an attorney at international law firm Reed Smith LLP.

Instead, they can decide to take only distributions, or even keep profits in the corporation as shareholders’ equity to be distributed at a later time, says Paul Jaskot, also a Reed Smith attorney.

However, payment of the federal self-employment tax — a Social Security and Medicare tax for individuals who work for themselves — should be weighed when considering how shareholders should take their compensation.

With an S corporation, salaries are subject to self-employment tax, but distributions are not. (Both are subject to regular federal income taxes.)

Even so, while it appears beneficial to take only distributions, many S corp shareholders elect to take at least a small salary, says Len Friedman, tax partner at the Bridgewater, N.J., accounting firm Rosenberg, Rich, Baker, Berman & Company.
Why? S corp shareholders who take only distributions must still pay self-employment tax on an “industry standard” amount of salary — or risk an IRS challenge, Moyer says.

“There’s the rub,” says Moyer, who suggests taking a salary limited to that industry standard to minimize self-employment tax liabilities. What counts as an "industry standard" is up to you to determine — but be prepared to back up your accounting if you set a lowball number. The IRS isn't shy about challenging salaries it deems too low.

With an LLC, owners whom the IRS considers to be self-employed must pay self-employment tax on all of their income — in other words, on both salary and distributions.

Thus, there is no salary requirement, because all income is effectively taxed as if it were a salary, Friedman notes.

So while LLCs provide more freedom for members to structure management operations and ownership of the company, they can generate higher tax burdens in certain situations, says Moyer.

There are many tax and legal implications involved in forming a business entity, so the experts advise discussing your specific situation with an attorney or tax professional.

Give us your advice: Check out recent “Ask & Answer” questions.

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A dry cleaner considers turning customers' absentmindedness into a tidy tax break.

Taylor, Jackson, Miss.

I own a dry cleaning business and was wondering what to do with all the forgotten or left-behind clothes. They date back a few months or as far back as a year. I read that by donating them I could get a tax write-off.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

You can donate them, but you might want to review your state's abandoned property laws — and at least one expert we spoke to says you can't take a tax write off.

Here's why: "A business charitable tax deduction has to have a tax basis," says Philip R. Lieb, an accountant in White Plains, N.Y. "The clothes cost the dry cleaner nothing. The cost of cleaning has already been expensed through the dry cleaner's business operation. The business charitable deduction would be nothing."

And, depending on the state, you also can't just dump them off at the local Goodwill and call it a day.

Many states place the disposal of forgotten clothes under abandoned property laws, and the guidelines can be quite specific, says Ann Hargrove, director of special events with the industry trade group the National Cleaners Association.

One New York cleaner ran into legal trouble for trying to sell clothes that had been left for more than six months, Hargrove recalls. In New York, the property cannot be sold, only donated to a charity.

And to give you an idea of the specificity of the law, at least in New York: Cleaners must give notice to customers that abandoned dry cleaning will be donated after six months, and "such notice shall be at a minimum 11 inches in height by 17 inches in length and the printed characters shall be 1.25 inches in height and at least .5 inches in width," the law decrees.

The cleaner must also keep the donation receipt, with the original receipt for the customer's drop-off, for a full three years after the donation.

Mississippi law is a lot less clear.

Kathryn Stewart, a Mississippi Treasury Department spokeswoman, says she can't find anything that places clothes left at a dry cleaner under the state's unclaimed property laws, which cover cash and securities.

Your fellow cleaners in Jackson seem to work under an informal guideline of considering items abandoned anywhere from 30 days to a full year after they're dropped off, says Ebony Beals, a clerk at Clark Cleaners, which has several locations in Jackson.

They wait a year and then donate the items. "We figure you either forgot or didn't want the items, but we do wait a full year," Beals says of her store's approach.

For additional advice on the tax implications of abandoned items, consider consulting your personal accountant.

Give us your advice: Check out recent “Ask & Answer” questions.

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Handling the client that wants the goods but doesn't want to cough up a check.

Susan Lewis, Lancaster, Calif.

Can we legally hold a client's paperwork if they haven't paid their bill? We do their bookkeeping and they haven't paid in months. We haven't done any additional work for about two months, and now they are asking for their paperwork back. If we send it to them, we will never get paid.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

Sending the paperwork back likely won't make a check materialize, but there are ethical issues to consider with holding it hostage.

Let's start first with trying to get paid.

Sharon Means, a certified public accountant from Cleveland who also owns a bookkeeping business, just dealt with a similar situation.

“I didn’t send it back," she says. "I just kept killing them with kindness. Every week I would send an e-mail. 'Can you pay me some? A payment plan?' If you are going to have any work done in the future, they have to understand that you just can't keep dishing it out with nothing in return. It's the squeaky wheel that gets the oil, so you have to put yourself in front of this person."

Her tactic paid off. "We worked it out so he paid at least half, and then we set a schedule for paying the rest of it," she says.

The recession is making it hard for many people and businesses to stay on top of their bills, she acknowledges "That’s the thing. Everyone is cash-strapped, I understand, but you have to keep up communication.”

But do you have a legal or ethical obligation to return the client's work product, cash or no cash? Being a bookkeeper means you have little regulatory framework for your job — unlike CPAs, who are bound by the American Institute of Certified Public Accountants Professional Standards. Violating those standards can lead to membership termination and disciplinary sanctions against certified accountants.

The relevant section of the Institute's standards code says, in part, that any financial records the client has provided you with should be returned on demand. Records that you've prepared yourself should also be handed over on request unless there are fees due to you for the preparation of those records. Supporting records related to finished work can also be withheld if you're owed fees for that specific work product.

David Bybee is president and CEO of the National Association of Certified Public Bookkeepers, a trade group for the unregulated bookkeeping field. He recommends that you give back any work papers that the client provided to you, such as year-end financial statements. But final reports that you produced do not have to be returned without compensation.

Give us your advice: Check out recent “Ask & Answer” questions.

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Business owners can write off many of their health care costs, but complying with IRS rules requires some planning.

Jonathan Cottor, Scottsdale, Ariz.

I have an LLC, and I’m seeking some advice about my family’s medical expenses. One accountant told me they can be run through the LLC as a business expense, and I’ve been paying the insurance premiums and any eligible co-pays and FSA-qualifying-type out-of-pocket costs through the business as an expense. I haven’t set up a separate HSA account, since the medical expenses run through the business and reduce my taxable income anyway when it pulls over to my personal return.

Another accountant has questioned this logic, and advised me that medical expenses need to reside solely on my personal return and are not business expenses. Who’s right?

By Lenora Chu, CNNMoney.com contributing writer

The second accountant is closer to the mark. For the most part, you'll need to treat medical costs as personal expenditures.

As a general rule, a business can only deduct expenses if they're “ordinary” and “necessary” for the operation of the business. Medical expenses for a member of an LLC are not considered “ordinary and necessary,” says Scottsdale, Az.-based tax accountant Phillip Wuollet of Johnson, Harris & Goff.

However, you still have options for cutting medical spending out of your tax bill.

You can deduct the premiums for your coverage using the "Self-Employed Health Insurance Deduction" on your personal return, according to Debbie Oster, director of tax compliance at Margolin, Winer & Evens, LLP in Garden City, N.Y. That will let you deduct 100% of the premiums paid for yourself, your spouse, and your dependents.

If the LLC pays for your coverage from its own coffers, it would need to classify that expenditure as a "guaranteed payment" to you. The business can deduct guaranteed payments as expenses, but then on your person return, those payments need to be included as income.

“If you pass it through as ‘guaranteed,’ you’re deducting it out of one pocket and adding it to another,” says Wuollet. “You’re just transferring money between accounts.”

If your insurance premium is passed through in that fashion, you can still deduct 100% of it off your personal return.

Co-pays and other incidental medical costs are considered your own expense — not the LLC's — and need to be included on your personal return. The IRS only lets you deduct medical bills, though, when they get extremely high: more than 7.5% of your AGI (adjusted gross income).

To get more tax protection, you could set up an HSA (health savings account), as you mentioned. Another relatively new option is a "section 105" health reimbursement plan. Under that arrangement, you contribute a fixed amount for each employee to an account that they can tap to pay for medical expenses.

Contributions to these accounts are tax-deductible for the company, and when the worker accesses the funds, those reimbursements are not considered taxable income, Wuollet says.

Give us your advice: Check out recent “Ask & Answer” questions.

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Selling sweet treats can be a fast way to make extra cash, but the road to doing it legally is paved with bureaucracy.

Ana, Dartmouth, Mass.
I'm thinking about making some truffles (chocolate and peanut butter), putting a flyer together, passing it to friends at work and selling to them. I'm making them at home.  Do I need to get a business license or a food license?

By Emily Maltby, CNNMoney.com staff writer

Lots of people are eying their kitchens right now as a way to earn a little extra cash in a bad economy. The Massachusetts Department of Public Health Food Protection Program receives more than 200 inquiries a year from residents hoping to open a food business.

The permits and licenses you will need vary depend on whether you want to incorporate, where you will be running the business, and the type of munchies you want to sell.

Each state has its own guidelines. Massachusetts recently published a brochure on the requirements for residential kitchens, broken out into two categories: "retail kitchens," from which you sell the goods directly, and "wholesale kitchens," for those who are selling their creations to another vendor, such as a local grocer.

What you're asking about is a retail kitchen. To set one up legally, you'll need to be inspected by the local board of health, which will approve and license you.

"They will test to make sure that there is appropriate sanitation, such as making sure there is enough chlorine to clean the food preparation areas and that the dishwashing operation has a sufficient temperature for sterilization," says Suzanne Condon, director of the Massachusetts Department of Public Health's environmental health and safety bureau, located in  Jamaica Plain, Mass.

The health board's inspectors will also make sure that your product is a "low-risk food," meaning that it does not require refrigeration and does not support the growth of disease-causing bacteria. The board may require a lab test to determine the pH and moisture levels of your snacks, along with other characteristics that would affect the food's shelf life. If the inspectors don't think your food qualifies as low-risk food, chances are you won't get the permit.

You will also be required to maintain a standard recipe, which will enable you to properly label the ingredients in your food. A new analysis may be required if you want to alter the recipe. For guidance on how to label your food, check out the FDA's Center for Food Safety and Applied Nutrition Web site.

In some states, kitchen inspections are conducted by the state inspectors. In Massachusetts, they are carried out on a local level. Fees vary widely: In Bedford, a permit can be had for only $50, but Belmont it is $85. Burlington charges $100, and in Arlington it costs $175.

Once you've had your kitchen and your product inspected, you can secure a business license from your local jurisdiction. The most basic registration is a sole proprietorship, which means you will have the ability to sell your goodies on your own. If someone else is working with you, the best option is to get licensed as a partnership.

You can stop there, or go a step further to form a business entity, such as a corporation or a limited liability company. "As a sole proprietor, all your personal assets are exposed," says John Meyer, business development leader at The Company Corporation, a firm that helps startups incorporate. "But by incorporating, you will establish a brick wall between the business and personal assets, because that business license would be under the entity's name — not yours."

Forming a business entity can also provide more tax flexibility, allowing you to deduct losses in years that your company doesn't make it into the black. It's up to you if the cost is worth the reward: Incorporating can cost as little as $100 through an online filing service, but keep in mind that states have their own, additional fees, which may tack several hundred dollars onto the final bill.

You don't have to decide right away whether you want to classify your food venture as a formal business or an income-generating hobby. At tax time, you can submit Form 5213, which allows you to defer for four more years the IRS's determination of whether your business is a for-profit venture.

For more information, the most comprehensive site about registering your business and obtaining permits is Mass.Gov's step-by-step guide to forming a local business.

Give us your advice: Check out recent “Ask & Answer” questions.

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If the problem of too many owners is killing the business, it's time to restructure.

Kelli, Bishop, Calif.
How hard is it to split a family business? A mother and three siblings each own 20% of the business but the siblings don’t get along at all.

By Emily Maltby, CNNMoney.com staff writer
First, decide if you are splitting the business solely as an asset or as a tool to seek revenge.

“If it’s the former, it’s much simpler," says Ted Clark, executive director of the Northeastern University Center for Family Business. "As an asset, you need to engage a marketing and research company to create the greatest value, and then sell and split the money. But unfortunately, it usually doesn’t work like that, because the families are emotionally attached to it and want something more than just the money.”

For example, one sibling may feel entitled to more than 20%. Another may not want to sell the company at all but sees it as the only solution to the family conflict. For everyone to come away happy, there needs to be a mediator.

“Try to get a third party to open the lines of communication,” suggests Clark. “Find a professional who everyone can agree is neutral so that no one feels that party has favorites.”

Small business center mediators are trained to get to the bottom of the family problems and keep the mistrust among siblings at bay.

When picking your outside referee, evaluate how well she understands your specific industry and your region. A CPA or valuation expert can help put a price tag on your company, but you'll need someone who is familiar with your industry and region and who can accurately assess your assets, cash flow, branding and local competition.

After you have a valuation in hand, you'll have two options, says David Goad, President of Succession Planning Consultants.

The first is the internal model, where certain current owners stay in management and run the business. In this case, it's best for those members to buy out the other members, using the valuation set by an outside professional.

The second, external model, is useful when none of the current members want to work in business anymore. That means putting the business up for sale to an investor or a competitor. This is a good time to get a business broker involved.

Keep in mind that many business sales deals carried out through payments on an installment note, rather than a cash buyout. If you decide to go with an internal arrangement, keeping some of the family members with the company, Goad recommends talking to your accountant about integrating a "self-canceling installment note" (SCIN) into the deal. SCIN is an arrangement used in many family business situations because it allows the deal to be cancelable at the death of the payee.

"The entire balance due becomes forgivable and no further payments are due to the seller's heirs or estate. Also, when properly planned, neither the value of the business or promissory note is subject to estate tax at the seller's death," says Goad.

Give us your advice: Check out recent “Ask & Answer” questions.

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Have a hot idea for an educational software product? Here's how successful entrepreneurs have cracked the market.

Ernest L. Leisner, Buffalo
I have created a word game that I would like to transform into an educational video game. I believe it can go a long way to help improve the dismal illiteracy rate in our schools. I have many aspects of a proposal in place and I’d like to find a government grant to help. I have tried searching the Internet, but there are scams all over the place.

By Kathleen Ryan O’Connor, CNNMoney.com contributor
Finding a grant to develop a business idea is nearly impossible. Scams abound, and legitimate grants from foundations and other philanthropic groups are almost exclusively for non-profit groups or educators, not private inventors. The only genuine place to search for U.S. government grants is grants.gov, but those rarely go to sole proprietors. (See "Business grants: Sorting out the scams.")

But there are still ways for a novice with a great idea to crack the educational software market. The first step is to get your product or proposal in front of people who know the market and can help you sell it.

There are two options: Create, publish and market the software yourself, focusing on either the retail or education market, or license the product to an established company.

Entrepreneur Margaret Johnson chose the do-it-yourself route for ItzaBitza, a computer game that helps kids learn to read through interactive art.

Johnson knew plenty about kids and software: She's a mother and spent nearly two decades at Microsoft. But what she didn't know was retail, which turned out to be the name of the game.

"For an entrepreneur, retail is tough. You are sitting on inventory … it takes a while to ramp up awareness," says Johnson, who left Microsoft to sell ItzaBitza through her educational games firm Sabi Inc. "Awareness is huge. That's tough for a little guy to get."

First, make a list of all the publishers in the educational game space – Johnson mentioned Microsoft (MSFT), Sesame Street and Nickelodeon, but look on the shelves at your local Best Buy or a similar store for more ideas. Then, make it a point to attend their conferences or find them at trade events. You won't need an appointment, but this is where shyness is not allowed.

"I basically stalked people," Johnson says with a laugh. She'd sometimes wait as long as two hours to talk with the right person. "I showed them the game right there." Johnson ultimately made the decision to self-publish – a riskier move, but a more profitable one if you are successful.

If you self-publish, the next step is to get your game into stores. That requires making contact with buyers. At small, local stores, you can approach owners directly, but if you want to crack a national chain, they won't usually field calls from unknown businesses. They work with major retail distributors – who also prefer to deal with larger companies with established sales histories.

Johnson had little luck approaching major distributors abut ItzaBitza, but from them she was able to get the names of several reputable distribution aggregators. Aggregators are companies that take on several smaller clients. Johnson used Channel Sources Distribution Co. of Brookfield, Conn, but there are plenty more out there.

Distributors will take care of logistics and paperwork for you, but their biggest asset is their network. "They have a sales force, and they call on Toys R Us," Johnson says.

ItzaBitza is now available on retail shelves in stores including Best Buy (BBY) and Office Max (OMX).

Despite the recession, the educational software market is poised for growth. Educators staring out at classrooms filled with kids raised on Nintendo and Xbox are more open than ever to incorporating software and video games into their curriculum.

John Rice, an educator specializing in instructional gaming who writes a blog devoted to the industry, points to games that started as purely entertainment that have been repurposed for educational use. The Civilization series, for example, has been adopted by teachers for sociology and history courses.

"Likewise, The Sims can be used as a language-acquisition tool when students play it in another language," Rice says.

That opens the door for direct sales to schools and other educators. Like the retail channel, though, that market has its own challenges and quirks.

"Education, as a market, is extremely homogenous – [schools are] structured roughly the same, with the same purpose – which is good from a business point of view," says Mark Jones, president of Echo 360, which offers technology for recording lectures. Jones describes his product as "TiVo for the classroom."

He recommends you find the early adopters or "visionaries" among educators or education institutions. Is there a school that consistently seems to be in the forefront of new technology? They might be more receptive to a pitch than a place still in love with the chalkboard.

If you can get them on board, "they will become a viral network for you," he says. Education is a very peer-driven field; administrators often rely on colleagues at other departments or schools for product recommendations.

If you're really strapped for the up-front capital to create your product, licensing could offer you the most bang for minimal bucks.

"Think about what kid brand is out there with established credibility and pitch the game as an extension of that brand," suggests Andrew Mininger, CEO of Mada Design, a New York-marketing firm that works with clients in the games, education and licensing arena.

The best and fastest way to reach representatives of major brands is through expositions like the International Licensing Industry Merchandisers’ Association's annual conference. This year, it's set for June 2-4 in Las Vegas. You'll have to pay for a ticket to the show, but it's open to anyone. Prices range from $180 for a basic floor ticket to a full package for $1,170 that will allow you to attend seminars such as "Basic Training for First-Time Licensees" and "Getting Your Brand Ready for Licensing."

Before you approach someone, do your homework. Have a pitch ready about exactly how your game can extend their brand. Do they already have educational books on the market? A software component could be a natural extension. Are they lacking an educational tie-in their competitors already offer? That's also an excellent way to get attention.

You might also want to take a look at developing the game for a particular platform like the Nintendo Wii or Sony's PlayStation Portable. "Everyone is trying to get more exclusive, like Microsoft with Xbox," Mininger says. Everyone wants to make their product the hottest one around, and "education is integrated into that experience."

Give us your advice: Check out recent “Ask & Answer” questions.

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Experts reveal the best ways to keep company information in the building when the employees exit.

Tom Goll, Owner, U.S. Diversified Tech, Nashua, N.H.
We always hear about what employees should do to prepare for layoffs. But what should employers do to ensure that company data, contacts and customer lists don't walk out the door with terminated employees?

By Adriana Gardella, Fortune Small Business senior editor
You can take several steps to prevent or deter misappropriation and to bolster your legal position should you find yourself embroiled in litigation, says labor and employment lawyer Chris Arbery of Hunton & Williams in Atlanta. Arbery advises employers to implement a clear policy on confidential information, specifying that all business data, media, equipment and networks are company property. Let your employees know that any unauthorized use or disclosure of company information will be taken seriously. And be sure they sign confidentiality agreements to safeguard your trade secrets and other potentially sensitive data such as customer lists.

You may also wish to consider incorporating a noncompete agreement into your employees' severance packages, says Elizabeth Milito, a lawyer with the National Federation of Independent Business in Washington, D.C. Such an agreement, which must comply with state law and be reasonable in geography and scope, will prevent your former employees from working for your competitors or striking out on their own.

Because these measures may not dissuade the most determined sneak, Arbery also counsels, "Work with a network-systems specialist to secure electronic files to prevent – or at least trace – unauthorized downloads to flash drives and the like."

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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Registering your company's name as a trademark isn't legally required, but it can pay off down the road.

Nick, Seattle
I am starting a clothing company and need to copyright the brand name. What is the best way to do this on a tight budget?

By Kathleen Ryan O’Connor, CNNMoney.com contributor
The difference between copyright and trademark isn't always obvious, but the distinction matters here.

Both are ways of protecting intellectual property, but copyright generally protects "original works of authorship" like a book, song or poem. A trademark covers the right of such things as brands, titles and logos. In your case, establishing and protecting the brand name of your clothing company is clearly a trademark issue.

There are plenty of low-cost ways of accomplishing this, none of which even require a lawyer. Do-it-yourself legal sites like LegalZoom or Nolo can be great resources for registering a trademark. The do-it-yourself cost ranges from $150 or so for a basic package to around $400 for more bells and whistles. LegalZoom, for example, will search the federal trademark database for direct conflicts – if you try to give your clothing company a name another clothing company has already trademarked, your application will be rejected – and perform a comprehensive state and common-law search. Absent conflicts, you, a lawyer or a legal service will prepare a federal trademark application and file it with the U.S. Patent and Trademark Office. The USPTO Web site has a wealth of information, including an extensive FAQ section and a fee schedule if you choose to file directly on your own.

There is nothing that says you must trademark your name, says Oliver Herzfeld, chief legal officer for The Beanstalk Group, a brand licensing consultancy in New York. You technically gain rights and protection just by using the mark – but there are advantages to owning a federal trademark registration. The registration will give you an exclusive right to use the name nationwide, certain overseas rights, and a legal presumption of ownership.

Registering your trademark is only the start of defending your corporate name. For your rights to a trademark to continue, you have to use it, protect it against infringers, and renew it. The history of brand names is littered with aspirins, cellophane and crock-pots – all former trademarks that lost their protection because their use became generic.

The most fraught venue for trademark disputes is the Internet. In that realm, trademark fights pop up constantly, according to Mark A. Lemley, a professor at Stanford Law School.

First, take keyword advertising. Companies frequently buy ads that appear on search results for competitors' trademarks. "If a consumer searches for Honda, a Toyota ad might come up if Toyota has purchased the right to place an ad there," Lemley says. "There is a lot of litigation on this, with inconsistent results so far."

Another trademark issue on the Internet is the problem of geography.

“Your name may be unique in your hometown, but someone across the country or across the world may use the same name, and online there are no geographic boundaries,” he says. “So we get all kinds of conflicts – does the domain name delta.com go to the Delta Faucet company, Delta Airlines, or Delta Dental plans, for instance?” So far, the tendency is to register domain names on a first-come, first-served basis.

“But we also have circumstances in which a small company who is first runs into a large company that comes later. Amazon (AMZN), for instance, is the name of a long-standing women's bookstore in Minneapolis,” Lemley says. “When Amazon.com began selling globally, the bookstore sued because it was confusing their Minneapolis consumers, and Amazon.com had to buy out their rights to online sales.”

As you pick out your company name, it pays to plan ahead and chose the strongest possible trademark. Very specific and descriptive names are easier to defend than broader ones, and the strongest trademarks are extremely unique. “Fanciful” marks like Exxon (XOM) or Kodak, essentially made up words, are the easiest trademarks to protect, Herzfeld says.

Once you have your name, be sure to police it. Patents last 20 years and copyrights live on for 70 years past the death of the author, but trademarks can last forever as long as you monitor them and follow the rules. ”That’s a huge benefit,” Herzfeld says.

Give us your advice: Check out recent “Ask & Answer” questions.

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If you're out of business and out of work, you may have to fight for the benefits you're due.

Anonymous
My husband and I own a small business in South Carolina. Since the bottom fell out of the market, our business has come to a screeching halt and we’re filing for bankruptcy. My husband is the primary officer of the company, but we’d also listed him as an employee and signed him up to draw a biweekly paycheck along with the rest of our employees. The company withheld taxes, Social Security and unemployment insurance from his paychecks.
Since we’ve not had work for four months now and my husband is unable to find even a regular job, he attempted to apply for unemployment benefits. (Our company paid $5,000 into that on his behalf over the last year.) After a month of deliberation, his claim was denied, since he is an officer of the company and supposedly had control of whether or not he was unemployed. I disagree – he’s not in control of the company being unable to sustain itself due to lack of work and lack of sales. Shouldn’t he be eligible to collect unemployment benefits?

By Lenora Chu, CNNMoney.com contributor
Laws regarding unemployment compensation differ from state to state, and each has its own rules regarding who’s eligible to receive benefits, says Philadelphia-based CPA Martin Chan.

In the state of South Carolina, in order to be eligible for benefits you must be:

—Unemployed
—Able to work
—Available for full-time work
—Actively seeking employment
—Reporting to the local employment service office as directed, and
—Separated from your former employment through no fault of your own.

On the face of it, as someone who is out of work involuntarily, your husband should qualify for unemployment benefits, says attorney Stephen Savitz of the South Carolina labor and employment law firm Gignilliat, Savitz & Bettis.

“Plenty of officers of corporations are paid unemployment,” says Savitz, including those who have some ownership interest in the corporation because they own shares of its stock.

However, there may be circumstances you haven’t mentioned which preclude him from eligibility. For example, if your husband laid himself off but let other people continue working at the company, he wouldn’t meet the requirement of having lost his job through “no fault of your own,” says Savitz. “Because he would have made that decision himself – he voluntarily quit."

But if he closed the company and laid everyone off, that could be different, Savitz says.

Without knowing the specifics of the case, it's difficult to know whether being an owner affects his eligibility. Savitz recommends that you hire an attorney to evaluate your husband’s options.

What happens next depends on where you are in the process. The next step may either be offering sworn testimony before an administrative hearing officer or appealing to the state’s full three-member commission. Beyond the commission, your subsequent option is an appeal to the circuit courts, Savitz says.

In any case, an employment attorney can help you determine how to best prepare for the next step.

Give us your advice: Check out recent “Ask & Answer” questions.

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My business failed. What can I write off?

How to get inventory when you're low on cash.

]]> http://smallbusiness.blogs.cnnmoney.cnn.com/2009/04/23/firing-yourself-unemployment-benefits-for-business-owners/feed/ 3 emilymaltby http://smallbusiness.blogs.cnnmoney.cnn.com/2009/04/20/starting-a-biz-what-you-can-write-off/ http://smallbusiness.blogs.cnnmoney.cnn.com/2009/04/20/starting-a-biz-what-you-can-write-off/#comments Mon, 20 Apr 2009 18:57:22 +0000 emilymaltby http://askfsb.blogs.fsb.cnn.com/?p=1013 ]]>

You don't get a tax break on money you borrow – but the interest you pay on your loans is fair game for deduction.

Bryanne Goetz, Orlando
I started a business from home this year. Can I write off the money that was loaned to me to start the company?

By Lenora Chu, CNNMoney.com contributor
You cannot write off money that was loaned to you. However, you can deduct the interest that you pay on the loan, says Martin Chan, a CPA of Philadelphia.

You can also claim any business expenses that may have been covered by the loan, such as office supplies and utilities, says Fullerton, Ca.-based CPA John Stoller.

In order to qualify as a tax deduction, these expenses must be considered both “ordinary” and “necessary,” says Chan. In other words, they must be common and accepted in your industry, and also helpful and appropriate to your business.

Give us your advice: Check out recent “Ask & Answer” questions.

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Some sales aren't worth winning. If parts of your company are successful and others aren't, it's time to purge.

Sharron Stankiewicz, Ohio
I own three hearing aid businesses, all listed under the same corporate name but located in different areas. Two of them are going bust. Can I get out of my lease and still keep the one successful business running? What could the landlord do if I simply walked away from those leases where the businesses are failing?

By Kathleen Ryan O’Connor, CNNMoney.com contributor
Some times you have to cut off ailing branches to save the rest of the tree. The trick is to do it without killing everything.

If you simply cannot continue with a commercial lease, the first step is to dust off the paperwork you signed when taking the property, read the fine print, and hope you were farsighted enough to negotiate an “out” in case of business failure.

If you didn't, your next step is to talk to your landlord. In a down economy the landlord might be prefer to live with less rent instead of an empty storefront – and that might buy you time to reorganize and renegotiate with other creditors.

If cheaper rent won’t save the business, walking away has its own issues.

The landlord has the right to try to recoup the money outlined in the lease with one caveat: they do have to make an effort to mitigate the loss, such as trying to find a new tenant. But if they find one and the new tenant can’t pay your full rent, you could get stuck owing the difference.

Alternatives to walking away include asking to buy out the rest of the lease with one discounted lump sum, or simply declaring bankruptcy and forcing the landlord to stand in line with everyone else you owe money to.

Say the landlord goes after the money. Your personal assets might be safe, but that’s assuming there was no personal indemnification clause in the contract and that your company is “actually a legal corporation where protections have been maintained and remain unbreeched,” says Deena Burgess, a New York City lawyer specializing in small and online businesses.

That said, the assets of the business – and that includes your remaining, healthy location – are fair game for the landlord and other creditors.

“Failure to separate the companies means that they would be treated as a single entity, and that the creditor [or landlord] could chase the assets of any and all of the businesses that comprise that corporation,” Burgess says.

If you need to start triaging, what first?

Edward Stevenson, a corporate partner in the Newark office of the law firm Herrick Feinstein LLP, suggests the following:

— Minimize or restructure the debts of the two unhealthy stores by negotiating with creditors.

“The first thing is to contact and meet with each creditor of the different stores in an attempt to work out a payment plan or a reduction of the liabilities so the two unhealthy stores can operate at break-even, or possibly at a profit,” Stevenson says.

— If you are unable to negotiate a resolution with the creditors, file for Chapter 11 protection. You would have to include all three stores, even the healthy one, in such a filing, but it might allow you to re-emerge with a leaner, more profitable operation. “It doesn’t have to be the death knell for the business,” he says.

— Test the market to see if a sale of any or all of the stores is feasible.

If you do emerge in a stronger position, be sure not to make the same mistake twice. Have a lawyer review your corporate structure, Stevenson advises. Maintaining each store as a separate legal entity can save a lot of headaches down the road.

Keith Gerson, president and COO of Tamarac, Fla.-based PuroClean, has first-hand experience with moving a company with different operations into a more streamlined and profitable model.

PuroClean began as PureSystems Inc., a jack-of-all-trades company that dealt with property damage mitigation, restoration and reconstruction. The model was successful, but after the depressed construction industry of the early 1990s rebounded and the contractors PureSystems worked with “went back to their first loves,” Gerson says, the reconstruction part suffered.

Although the overall model was strong – the company added 82 franchises between 1991 and 2000 – its managers had to take a tough look at their business and admit that certain aspects weren't working.

One franchisee was doing nearly a million dollars worth of sales per year but was still losing money. Which led to PureSystems' big revelation: “Not all business won is worth keeping," Gerson says. "Sometimes you want to concede that to the competition. That work might just be tying up your bandwidth.”

From that epiphany came the tough choices. "We went ahead to move into a brand called PuroClean [and] tailored it to focus on the mitigation work,” Gerson says. “The margins were significantly improved.”

In 2001, the company franchised the first PuroClean. The change paid off: It's since expanded to 263 locations, three times the growth it had in the '90s.

“You need to obviously understand your business and your margins or get someone who will help you,” Gerson says. “The rest will take care of itself.”

Give us your advice: Check out recent “Ask & Answer” questions.

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Is a court likely to uphold a restrictive noncompete agreement? It depends on where you live.

Ryan H. from Fort Wayne, Ind.
When I started my current job, I signed a noncompete agreement without really reading it. After reading it in full, I discovered that it sounds like they're trying to keep me out of the entire Web design industry, anywhere in the U.S., for two years after leaving. I am looking for a new job right now – should I be worried about this? Would a judge ever uphold such a sweeping contract, in spite of my signature on it?

By Kathleen Ryan O’Connor, CNNMoney.com contributor
A business has the right to protect its intellectual property, but the terms must be reasonable. Unfortunately for employees looking for clarity on their noncompete deals, what counts as “reasonable” is often left up to a judge’s discretion.

On your side is the current legal trend against overly broad noncompete agreements. California courts, where Silicon Valley litigation over top tech talent often ends up, have led the charge by effectively making such covenants unenforceable. The most high-profile recent case was that of Dr. Kai-Fu Lee, a former Microsoft IT executive whom Google hired away in 2005 despite a one-year noncompete agreement. The two software giants battled it out in California courts all year, until a private settlement was reached.

To find out about issues that might be specific to your geographic area, we spoke to Sam Hasler, an attorney in Anderson, Ind.

“Let’s assume they do business in the Marion County,” Hasler says of your former company. If you try to serve clients in the same area before your agreement runs out, having a lawyer at the ready is a wise move.

“I know people hate hearing that, but an ounce of prevention is worth a pound of cure,” he says.

But if you are trying to establish a relationship with a client in, say, New York, and your previous employer has never done business there, you have a very strong argument for a judge that preventing you from pursuing that work is simply punitive.

For workers thinking of using the soft job market as a catalyst to fly solo and launch their own business, are noncompetes an obstacle? A group of academic researchers studying the issue say there's some evidence that their use inhibits entrepreneurship.

"It’s the chilling effect," says Matt Marx, a doctoral student in business administration at Harvard. Very few companies actually take former workers to court over the agreements, but simply having them in place can discourage ex-employees from launching new ventures. “They think, 'I better play it safe. There is no upside for you; you have to protect yourself.'”

Marx and two co-authors published a 2007 study examining commerce in Michigan before and after the 1985 repeal of a state law barring noncompete agreements. By studying investors' patent records, they found a significant drop in employment mobility after the state began enforcing noncompetes.

The issue is a personal one for Marx, an active inventor in the speech recognition field.

Before embarking on his Ph.D., he worked at a Boston company and was bound by a noncompete agreement when he was recruited by another firm. Because the new employer was in California, he was able to disregard the contract. But, in an ironic twist, when Marx returned to Boston years later to attend business school, his original employer wanted to hire Marx as a consultant but couldn't because of his concern that Massachusetts courts would enforce the noncompete deal that the California company had Marx sign.

“You have California at one extreme and then you have a bunch of states at another extreme,” says Lee Fleming, a Harvard professor and one of Marx's co-authors. He and Marx believe businesses would be better served by ditching noncompetes and focusing their energy on enforcing covenants that specifically protect trade secrets.

The researchers hope the economic pressures of the recession will help weaken noncompetes. Companies are laying off workers en masse but insisting that those workers respect their noncompete deals, they say. That's a hard position to defend.

“Is that reasonable?” Fleming asks. “Do we really want to prevent [job seekers] from getting work where they can be productive?”

Give us your advice: Check out recent “Ask & Answer” questions.

Sorry, it's legal, and you may even have to pay more than just the rent.

Richard Barker, Aprizona Florist, Covington, Ga.
Our business went south, and as a result we had to break our lease. Less than 30 days later, the landlord rented the space to a new tenant. Six months after that, we were served with papers demanding $12,000, which is the remaining rent on the lease. Is it legal for the landlord to collect rent from both new and old tenants?

By Adriana Gardella, FORTUNE Small Business senior editor
The answer depends on your lease terms. As you describe it, the situation sounds unfair, but that doesn't make it illegal, says lawyer Hanna Hasl-Kelcher, author of The Business Guide to Legal Literacy: What Every Manager Should Know About the Law.

Generally, a tenant must pay rent until the lease term expires. Moving out early won't end that obligation unless you have a different agreement with the landlord – preferably in writing. Although some agreements may provide that the landlord can find a new lessee before the broken lease expires and use the new tenant's rent to offset the amount owed by the departing tenant, you shouldn't act on this assumption. "This type of provision must typically be negotiated," Hasl-Kelcher says.

Have an attorney review your lease and discuss possible defenses to your landlord's claim. Typically, you'll face a penalty for breaking a lease, says Elizabeth Milito, a lawyer with the Small Business Legal Center, which is operated by the National Federation of Independent Business in Washington, D.C. Even if your landlord reduced his or her damages by the amount of the new tenant's rent, in many states it is the former tenant's responsibility to prove that damages should be limited, she adds. There are other damages you may be obliged to pay, such as your landlord's attorney fees and expenses incurred in finding the new tenant.

Next time review your lease carefully before signing. "Commercial leases typically provide more room for negotiation than residential leases," Milito says. "Don't be afraid to request modifications."

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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When the lease outlives the business

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How to get capital when you are your partner disagree on the risks.

C. Miranda, Urban Revitalizers, Boston

I am a partner in a small, certified minority business, and have been managing it for the past 10 years. My firm has just won a statewide contract to conduct assessments of real estate throughout the state. It is our first large contract, and it requires some start-up capital. I have applied for several business loans to carry us through until our first pay-down. The problem is that my business partner of 10 years is not willing to sign, saying that she wants to be able to continue to pay the bills if everything fails. I have used all of my credit cards to get us part of the way there, but still need more capital. My credit score is high. Can someone tell me how I can get over this hurdle?

By Emily Maltby, CNNMoney.com writer

You've got two things that many businesses are wishing they had right now: An ironclad government contract and loan options.

"In a way, that makes this a no-brainer," says small business coach Marian Banker of Prime Strategies. "I think you'd benefit from a discussion about your visions and goals for the company, because you and your partner may not be on the same page."

While business partners' personal goals for what they want to get out of the business can differ, your aims for the business itself should be the same. "If you can identify where the disconnects are in your mindsets about the business – which is probably where the problem lies – the rest of your issues will be solvable," Baker says.

When you sit down with your partner, talk about measurable goals. Your partner may think that the business can't afford certain risks , while you think that it can. Or you may have different ideas about what counts as a "calculated" risk, Banker says. Ask your partner what her growth plan is for the business, as an alternative to this contract. If she has a good idea, make sure you're open enough to entertain it.

But let's face it. Partnership issues aren't always that civil. You will each make put forward your best case, but sometimes disputes can't be resolved through negotiation.

There are some remaining options that might satisfy you both. The first is for you to ask your bank for a short-term loan without her signature.

"For the bank to consider that appeal, you would have to produce the signed contract, plus a separate business plan for just that project, which includes the projections of revenues and income after expenses that would be generated from the project," says Porus Sagar, an Orlando accountant and current SCORE counselor. "The underwriting standards of the bank will determine whether her signature is necessary, and you might be able to negotiate the extent of your liability with the bank."

There is a strong chance that the bank won't accept this option. If you both own exactly equal stakes in the company, the bank will usually want both of you to sign for the loan. One option is for your partner to give up a percentage of her ownership and give you the majority stake in the business. That will both compensate you for the additional risk you're assuming, and give the bank one managing partner to work with.

Sagar and Banker say that giving up ownership can be a sticky situation – emotions can hinder progress. Sagar has seen many partnerships dissolve in ownership disputes. He suggests asking an objective, independent attorney to help adjust the capital ratios.

"The lawyer will also help decide if the ownership arrangement is best as a permanent change or just for this project," says Sagar. "To create less friction, you could opt to take on additional liability for the moment; then when the job is complete, you could keep all the profits from it but rework the capital interest back to her. Take advantage of different levels of compromise that may be available."

Give us your advice: Check out recent “Ask & Answer” questions.

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If your company went under, you can salvage some of the losses when you file your taxes.

Shawn Calvert, Kokomo, Ind.
My wife tried a small business and it failed after a short time. We lost about $30,000 on it. What can we write off?

By Lenora Chu, CNNMoney.com contributing writer

After your business fails, the IRS allows you to write off all “reasonable” and “necessary” expenses incurred in the attempt to make it successful.

Those are very broad terms, but they encompass just about anything you spent in a business setting to try to earn money, says tax attorney Brian Whitlock of Blackman Kallick in Chicago.

That includes everything from rent and office supplies to advertising costs and mileage for business travel, says Michael Beauchemin of the Charlotte, N.C.-based Carolina Accounting and Tax Service.

Your business losses will give you a federal tax deduction you can use against your remaining income. Unlike tax credits, deductions don't reduce your tax bill on a dollar-for-dollar basis – you won't be able to recoup the entire $30,000 you sank into the business. But deductions do reduce your tax bill (exactly how much they save you depends on what tax bracket you fall into) and take the edge off some of the pain of a failed venture.

Where and when you take the deductions will depend on how the business was organized and operated. More detail is provided in IRS Publication 334: “Tax Guide for Small Business.”

If the business was operated as a sole proprietorship, your losses can be claimed on Schedule C of IRS Form 1040. Any expenses in excess of revenue you earned will be deductible without limitation, Whitlock says.

If the business was incorporated, your loss will be the difference between the cash and assets you invested in the business and the value of what you received when you liquidated the company.

Whether you were incorporated or not, your losses can be carried back and forward to reduce your tax liability in previous or subsequent years, says Beauchemin. The rules apply differently depending on your situation. For example, certain small businesses can carry back these losses for several years and forward for up to 20 years.

Remember also, says Whitlock, that if the IRS believes you did not make a legitimate attempt to make your business profitable, it can argue you were engaging in a hobby rather than running a business. Hobby losses are not deductible.

In your case, the experts highly recommend consulting with a CPA or tax attorney for help preparing your taxes. What you'll spend on fees will likely be offset by the tax advantages an experienced accountant can help you exploit.

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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Planning ahead is your best bet for a successful resolution if a business deal turns toxic.

Amy, Wheeling, W.V.
I formed an LLC with two other partners. They are a couple. One owns 33%, the other 34% and I own 33%. We do not have any legal documents drawn up. I want to take the business and get them out. One partner does nothing and still works a full-time job and the other is a control freak making poor choices. This is a new venture, and they funded it with credit cards. The debt is small and I can easily take it over financially, but they will not sell the business to me. The response has been fantastic, and I want to have the business before they ruin it. Do I have any options at all?

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

Starting a business with partners is a lot like embarking on a marriage. Attending to details like what happens if it all falls apart can seem silly and unromantic. After all, you’re in love. What could possibly go wrong?

But as any seasoned business owner can tell you, things go wrong all the time. The most successful entrepreneurs always plan for the worst from the very beginning.

The first mistake came when you started the business without a detailed and written-down operating framework.

“This was just not smart,” says Francie Dalton, founder of a Columbia, Md.-based consulting firm that specializes in communication, management and behavioral sciences. Dalton is also the author of Versatility: How to Optimize Interactions When 7 Workplace Behaviors Are at Their Worst.

The time to have hashed this all out was when the limited liability corporation was first formed, she says. An LLC operating agreement should spell out all the rights and responsibilities of the partnership, from profit distribution to exactly how a partner can exit.

Drafting such an agreement doesn’t have to cost a mint, Dalton says. Boilerplate legal language covers many of the details.

But since this didn’t happen in your case, you now have two choices: Stick it out and draw up a solid agreement with the help of a lawyer, or get out.

“If she wants to stay, she needs to get a little bit of humility,” Dalton says. If you want your partners to work with you on drafting bylaws for your company, you’ll need to offer them something they want in return.

“Start or stop doing something that to make [the other partners] happy," Dalton advises. "Once she has given those things, then she can request what she wants them to start and stop.”

If communication has become truly toxic, calling in a professional facilitator to manage the conversation might be money well spent.

Danielle Luffey, a marketing and public relations consultant in Minneapolis, founded DVA Brand Communications after a failed partnership – like you, she didn’t insist on having the key details worked out in writing before she jumped in.

Looking back, Luffey wishes she and her partner had consulted a facilitator. The two had been longtime friends, which added another layer of difficulty when tensions arose over responsibilities and expectations. They eventually went their separate ways, but not before they had to work out some fairly painful details, like how clients would be divided and who got to keep the domain name and logo.

“I really felt like we were going through a divorce,” Luffey says. And without a legal safety net set up in advance, there was little a lawyer could do at that point. "The attorneys said at the time, ‘Since you don’t have any paperwork, it’s sort of up to you.’"

It's also very easy in the first blush of a new business venture to forget some basic rules of human dynamics. The fact the other two partners are a couple should have been a red flag to consider, Dalton says: "They are motivated to be a unified front."

Say you decide to cut your losses and move on. Now what?

They may not be willing to sell the business to you, but will they agree to buy you out? As Dalton put: “’Hey guys, here’s my number and I’m out of your hair.’”

If not, it might be worth it to leave your chips on the table and walk away. There's at least one upside of having no operating paperwork: There is likely nothing in writing that says you can't turn around tomorrow and start your own rival business doing the exact same thing.

“This kind of thing can eat you up inside,” Dalton says. “You have to decide if it’s worth it.”

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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If you're going to use copyrighted work within your own, be prepared for legal headaches.

Cynthia Lamb, President of Rhino Entertainment, Bright, Ind.
I own a consulting firm and plan to self-publish a book detailing lessons I've learned. In my book, I quote song lyrics. The U.S. Copyright Office says I must get permission from the songs' copyright holders before using the lyrics, and I've started to do so. But my research suggests the fair use doctrine would let me reprint a percentage of the lyrics without this hassle. Can you help me understand the law in this area?

By Adriana Gardella, Fortune Small Business senior editor

When it comes to fair use, which is a defense to a copyright infringement claim, there are no bright-line rules or percentage calculations that will shield you from potential liability.

"The law is deliberately vague," says Emmett McAuliffe, an entertainment lawyer with Spencer Fane Britt & Browne in St. Louis. McAuliffe explains that this fuzziness isn't designed to confuse laypeople, but rather to strike a delicate balance that will not unfairly favor one side. It is for the courts to decide on a case-by-case basis whether the fair use doctrine protects an alleged infringer.

"In some situations, a small percentage of lifting can get you in trouble, and in others a large percentage can be okay," says McAuliffe, who notes that the size of a quote is just one of four factors that courts weigh when ruling on fair use. The others are the purpose and character of your use, the nature of the copyrighted work and the effect of the use on the potential market. Only a lawyer who is fully familiar with the facts of your case should attempt to assess these issues.

If you are tempted to enter this gray area without professional guidance, McAuliffe suggests you ask yourself this question: "Can I afford to go through an expensive trial to defend my fair use rights?" If you're at all litigation-averse (and really, who isn't?), McAuliffe advises either hiring a law firm to do a prepublication review or dropping the lyrics altogether. Why not find a way to make your point using your own words?

If you must use the lyrics, it's important to have a qualified attorney analyze the ownership status of each song, secure permissions, and ensure that all clearances are in the proper form.

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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The pricey path to patenting an idea

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Is your idea safe?

]]> http://smallbusiness.blogs.cnnmoney.cnn.com/2009/02/24/what-fair-use-protects-and-doesnt/feed/ 0 scowley http://smallbusiness.blogs.cnnmoney.cnn.com/2009/02/19/who-pays-the-penalty-for-hiring-illegal-workers/ http://smallbusiness.blogs.cnnmoney.cnn.com/2009/02/19/who-pays-the-penalty-for-hiring-illegal-workers/#comments Thu, 19 Feb 2009 22:47:23 +0000 emilymaltby http://askfsb.blogs.fsb.cnn.com/?p=932 ]]>

If you work with outside staffing agencies, both sides have some responsibility for ensuring that your workers are legal.

Sharon Rider, Lake Charles, La.
If a small business needs temporary help and uses a staffing firm to obtain hourly workers, who will be subject to penalties if the workers turn out to be illegal aliens? Is it the small business or the staffing firm?

By Adriana Gardella, Fortune Small Business Senior Editor

Both may be liable. "Immigration law generally imposes sanctions on those who knowingly employ unauthorized workers," says labor and employment lawyer Michael Thompson of Lehr Middlebrooks & Vreeland in Birmingham. So, depending on who knew – or should have known – that the employees lacked proper authorization, there could be liability for the business owner, the agency, or both.

There are also cases where neither will be liable. "If the proper employment documentation is presented by an employee who subsequently is found to be illegal, no one will be held liable as long as the employer acts to remedy the situation when advised," says Frida Glucoft, chair of the immigration practice at Mitchell Silberberg & Knupp in Los Angeles.

But that doesn't mean you can bury your head in the sand. "One of the regulations related to unlawful employment expressly extends enforcement beyond the direct employer to anyone who acts with reckless and wanton disregard for the legal consequences of permitting another individual to hire an unauthorized alien," Thompson cautions. He notes that in one well-known case, U.S. Immigration officials investigated Wal-Mart (WMT) because its contractors had hired cleaning crews that included unauthorized workers. In 2005 the retail giant settled the matter with the government for $11 million and agreed to create an internal program to ensure that its contractors comply with immigration laws.

So how can you avoid landing in a Wal-Mart-like bind? Thompson urges you to create a written agreement with any employment agency you use. "It should contractually obligate the agency to comply with all applicable employment verification procedures and, to the extent permitted by law, require it to defend you and hold you harmless against any claim or cause of action related to unauthorized employment."

Thompson also advises you to work only with reputable staffing agencies and to take appropriate action to investigate claims that they are assigning undocumented aliens to work at your firm.

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

Give us your advice: Check out recent “Ask & Answer” questions.

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Want to write off the cost of meals while you're traveling? Here's a rundown on what to deduct, and how.

Donna, Rome, N.Y.
My boss is an electrician and is working 4 hours away from his office. Can all his meals be deducted while away from his home office?

By Lenora Chu, CNNMoney.com contributing writer

The IRS allows you to deduct travel expenses, including meals, if you are working away from your “tax home,” or your principal place of business.

Generally, four hours away from your normal place of business would qualify as “away,” says tax attorney Brian Whitlock of Blackman Kallick, based in Chicago.

More specifically, two conditions must be met for you to be eligible to take a meal deduction, says Michael Beauchemin of the Charlotte, N.C.-based Carolina Accounting and Tax Service. Your duties must require you to be away for substantially longer than an ordinary day’s work, and you must need sleep or rest to meet the demands of your work while away from home.

An example might be the electrician who must travel to a job site, perform the work, and then stay in a hotel room to rest before the return trip home. In this case, meals would be eligible for deduction, says Beauchemin. However, should the electrician travel to a work site, take an hour off for a meal, and then return home in the same day, the meal deduction would not be allowed.

Note that should the “away” work extend beyond several months, the IRS may deny the deduction on the grounds that the tax home has shifted to the location of the work, Whitlock says.

How much can you write off for qualifying meals? Generally, you can deduct 50% of the actual cost of the meal, or you can take the IRS's standard meal allowance, says Beauchemin. That's $39 per day in most cities.

Give us your advice: Check out recent “Ask & Answer” questions.

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