Creditors harass parents of debt holder

Dear Dave,

My older sister has run up some pretty large debts, and there's one creditor in particular that's giving her a bad time. She only owes them about $500, but they somehow got our parent's phone number. They called and made my mom feel so bad that she paid part of the bill. Now this company is calling my parents four or five times a day, thinking that if they're pushy enough she'll pay them more money. What can they do?

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Donna

Dear Donna,

First, your mom and dad should get an answering machine – one that has a memo button that allows them to record conversations. The next time these bozos call, your dad should get on the phone and explain to them that the conversation is being recorded and that they are not liable for your sister's debt. Let them know, too, that if they ever contact them again about this matter, they will sue!

Your dad also needs to tell them that if they call them again he will file a complaint with the Federal Trade Commission. What this company is doing is a violation of federal law and the Federal Fair Debt Collections Act. If the caller can't understand that, make them put a supervisor on the line and repeat it. Your dad needs to crawl all over these people, because what they're doing is illegal, immoral and just plain mean!

Even if he did owe the bill, calling that many times a day is still a violation of federal law. He's not going to get rid of these people by being nice!

Dave

Tax breaks for incorporating?

Dear Dave,

I opened a staffing firm not long ago as a sole proprietorship. It's grown quickly, and now I'd like to incorporate for tax purposes. What would you recommend?

Carlos

Dear Carlos,

There's really no good reason to incorporate for tax purposes. A C-Corporation can actually cost you more in taxes, and an S-Corporation will probably not save you on taxes. The idea that there are bunches of tax breaks for incorporating is largely a myth.

However, there are other good reasons to incorporate. If you operate as a sole proprietorship, the assets of the company are your personal assets. And in that case, your property is at stake in the event of a lawsuit. Let's say you have $300,000 worth of house, cars and money, and you don't want someone to sue your company and take your personal belongings. Then, you'd want to incorporate, because you have a good liability reason to incorporate.

I say a C-Corporation is worse because you pay taxes on your net profit. Then, when you pay those profits out to the shareholders, they pay taxes again on it. So if you're the sole shareholder in your C-Corporation, you'll pay taxes on those profits twice – once for the corporation and once personally.

So you never want to create a C-Corporation for a sole proprietorship. They're usually only good for very large companies or one that looks like it might be going public.

Dave