[...]... your inventing expenses and paying taxes on inventing income Ownership and Exploitation Chapters 11 through 17 cover laws regarding ownership WHY INVENTORS NEED TO KNOW ABOUT LAW, BUSINESS AND TAXES and exploitation of your invention These laws include intellectual property laws for inventors such as patents, trademarks, trade secrets and copyrights, as well the law relating to invention licensing Chapter... law the array of laws, such as patent law, that protect inventions and thereby enable inventors to make money from them • business the knowledge of how to properly organize and run inventing activities like a real business, and • taxes the ability to take advantage of the tax laws to help underwrite inventing efforts This book is intended to help the independent inventor fill this knowledge gap Whether... inventing, but at least you’ll be able to avoid some of the mistakes other inventors have made A Business, Tax or Law? This book is divided into three conceptual parts: Starting and Running Your Business Chapters 2 through 4, 9 and 10 cover starting and running your inventing business, including choosing your form of business, record keeping and hiring employees and contractors Taxes Chapters 5 through 8 cover... A/5 D Files Included on the Forms CD A/7 Index Chapter 1 Why Inventors Need to Know About Law, Business and Taxes A Business, Tax or Law? 1/2 B What’s Not in This Book 1/3 1/2 G INVENTOR’S GUIDE TO LAW, BUSINESS & TAXES enius is not always rewarded Hungry for cash, John “Doc” Pemberton sold the world’s most famous trade secret—the formula for CocaCola, for less... title to property, sue and be sued, have bank accounts, borrow money, hire employees and perform other business functions In theory, every corporation consists of three groups: • those who direct the overall business, called directors • those who run the business day to day, called officers, and • those who just invest in the business, called shareholders 2/4 INVENTOR’S GUIDE TO LAW, BUSINESS & TAXES. .. business corporation, these three groups can be and often are the same person—that is, a single person can direct and run the corporation and own all the corporate stock So, if you incorporate your one-person inventing business, you don’t have to go out and recruit and pay a board of directors or officers B Expense and Complexity Some business forms are more expensive to set up and more difficult to. .. Security and Medicare taxes on their net self-employment income These taxes must be paid four times a year along with income taxes in the form of estimated taxes (See Chapter 8, Section D.) But, sole proprietor inventors need only pay self-employment taxes if they earn a profit from inventing Inventors who incur losses don’t have to worry about these taxes EXAMPLE: Lisa is a sole proprietor inventor who... have to pay any selfemployment taxes 2 Partnership Partnerships receive much the same tax treatment as sole proprietorships Like proprietorships, partnerships do not pay taxes Instead, 2/8 INVENTOR’S GUIDE TO LAW, BUSINESS & TAXES partnership income and losses are passed through the partnership directly to the partners and reported on their individual federal tax returns Although partnerships pay no taxes, ... Financial Statements 4/14 E Other Inventing Business Records 4/14 5 Tax Basics A Inventors Who Earn Profits 5/2 B Inventors Who Incur Losses 5/6 C Inventors Who Hire Employees 5/7 D How To Handle Your Taxes 5/7 E IRS Audits 5/10 6 How to Prove to the IRS You’re in Business A Qualifying as a Business 6/2 B Passing the 3-of-5 Profit... INVENTING BUSINESS C Tax Treatment Probably the most important single factor to think about when deciding on a business form is taxation If, like most independent inventors, you expect to incur losses for some time, a sole proprietorship or partnership is your best choice 1 Sole Proprietorship When you’re a sole proprietor, you and your inventing business are one and the same for tax purposes Sole proprietorships . expenses and paying taxes on inventing income. Ownership and Exploitation. Chapters 11 through 17 cover laws regarding ownership WHY INVENTORS NEED TO KNOW ABOUT LAW, BUSINESS AND TAXES 1/3 and exploitation. Files to Create Documents A/3 C. Using PDF Forms A/5 D. Files Included on the Forms CD A/7 Index Chapter 1 Why Inventors Need to Know About Law, Business and Taxes A. Business, Tax or Law? 1/2 B professional, consult an attorney licensed to practice in your state. 1st edition Inventor’s Guide to Law, Business & Taxes by Attorney Stephen Fishman FIRST EDITION MAY 2003 Editors RICHARD STIM AMY