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

2 Choosing the Legal Form for Your Inventing Business

A. Your Business Entity Choices ......................................................................... 2/2

B. Expense and Complexity ............................................................................... 2/4

C. Tax Treatment ................................................................................................ 2/7

D. Liability Concerns ....................................................................................... 2/12

E. Recommended Business Forms .................................................................... 2/18

3 Setting Up Shop

A. Choosing a Name for Your Business .............................................................. 3/3

B. Working at Home ......................................................................................... 3/6

C. Leasing a Workplace ................................................................................... 3/12

D. Business Licenses and Permits ..................................................................... 3/14

E. Federal Employer Identification Number ..................................................... 3/16

F. Insurance .................................................................................................... 3/17

Table of Contents

Table of Contents

4 Bookkeeping and Accounting

A. Simple Bookkeeping for Inventors ................................................................. 4/2

B. Length of Time for Keeping Records and Logs ............................................. 4/12

C. Accounting Methods and Tax Years ............................................................. 4/13

D. Creating 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 Test .......................................................................... 6/4

C. Passing the Behavior Test ............................................................................... 6/5

7 Inventor Tax Deductions

A. Tax Deductions: The Basics ........................................................................... 7/2

B. Tax Deduction Road Map ............................................................................. 7/8

C. Inventing Expenses You May Currently Deduct ........................................... 7/10

D. Inventing Expenses You Must Deduct Over Time ......................................... 7/27

E. Special Deduction Rules ............................................................................. 7/33

8 Taxation of Inventing Income

A. Capital Gains vs. Ordinary Income ............................................................... 8/2

B. Capital Gains Treatment for Patents Under IRC § 1235 ................................. 8/3

C. Paying Self-Employment Taxes ...................................................................... 8/6

D. Paying Estimated Taxes ................................................................................ 8/10

9 Your Inventor’s Notebook

A. Why Keep an Inventor’s Notebook? .............................................................. 9/2

B. How to Keep Your Notebook......................................................................... 9/5

C. Witnessing Your Notebook ............................................................................ 9/7

D. Alternatives to the Inventor’s Notebook ........................................................ 9/8

10 Hiring Employees and Independent Contractors

Part I: Determining Workers’ Legal Status ..................................................... 10/3

A. ICs Are Business Owners, Employees Are Not ............................................ 10/3

B. Pros and Cons of Hiring Employees or ICs .................................................. 10/5

Part II. Hiring Employees ................................................................................. 10/7

C. Drafting an Employment Agreement ........................................................... 10/9

D. Tax Concerns When Hiring Employees ..................................................... 10/22

Part III. Hiring Independent Contractors ....................................................... 10/26

E. Drafting an Independent Contractor Agreement ........................................ 10/26

F. Tax Reporting for Independent Contractors ............................................... 10/37

11 Who Owns Your Invention?

A. Patent Ownership ........................................................................................ 11/2

B. Are You an Inventor? ................................................................................... 11/3

C. Are You a Solo Inventor? ............................................................................. 11/4

D. Are You a Joint Inventor? ............................................................................. 11/5

E. Are You an Employee/Contractor Inventor? ............................................... 11/13

F. Have You Transferred Your Ownership? ..................................................... 11/26

G. Trade Secret Ownership ............................................................................ 11/29

12 Introduction to Intellectual Property

A. What Is Intellectual Property and Why Is It Important to Inventors? ............ 12/2

B. Doing the Work of Obtaining IP Protection ................................................ 12/8

13 Ten Things Inventors Should Know About Trade Secrets

1. All Inventions Begin As Trade Secrets .......................................................... 13/2

2. Any Valuable Information Can Be a Trade Secret ........................................ 13/2

3. Trade Secrets Are the Do-It-Yourself Intellectual Property ........................... 13/3

4. You Can Make Money From Trade Secrets .................................................. 13/3

5. Trade Secret Protection Is Weak .................................................................. 13/4

6. Trade Secret Laws Don’t Protect Against Independent

Discovery or Reverse Engineering ............................................................... 13/5

7. Trade Secret Protection Has No Definite Term ............................................ 13/6

8. You Must Choose Between Trade Secret and Patent Protection ................... 13/6

9. You Must Keep Your Trade Secrets Secret .................................................... 13/9

10. When In Doubt, Use a Nondisclosure Agreement .................................... 13/11

14 Fifteen Things Inventors Should Know About Patents

1. Patents Are the Most Powerful IP Protection ................................................ 14/2

2. A Patent—By Itself—Won’t Make You Rich ................................................. 14/2

3. You Can Profit From Your Invention Without a Patent .................................. 14/3

4. Patents Don’t Work Well for Inventions With Short Commercial Lives ........ 14/4

5. Patents Are Expensive and Difficult to Obtain ............................................. 14/5

6. Most Inventions Are Not Patentable ............................................................ 14/7

7. Do a Patent Search Before Anything Else ..................................................... 14/9

8. You Must Document Your Inventing Activities ........................................... 14/10

9. You’ll Lose Your Right to Patent If You Violate the One-Year Rule .............. 14/10

10. Filing a Provisional Patent Application Can Save You Money .................... 14/11

11. Patents Last 17–18 Years ............................................................................ 14/12

12. Enforcing a Patent Can Be Difficult and Expensive .................................... 14/13

13. U.S. Patents Only Work in the United States ............................................. 14/13

14. Filing for Patents Helps Show You’re in Business ....................................... 14/13

15. Design Patents Can Protect the Way Your Invention Looks ........................ 14/14

15 Ten Things Inventors Should Know About Trademarks

1. Trademarks Can Earn Billions...................................................................... 15/2

2. Trademarks Identify Products and Services ................................................. 15/2

3. You Must Have Trade to Have a Trademark ................................................. 15/3

4. You Don’t Need a Trademark to License Your Invention (But It Can Help)... 15/3

5. Trademarks Are Not All Created Equal ........................................................ 15/4

6. Registering a Trademark Is Not Mandatory, But Provides

Important Benefits ....................................................................................... 15/4

7. Intent to Use Registration Can Protect Your Mark Before

You Use It in Trade ...................................................................................... 15/5

8. Do a Trademark Search Before Selecting Your Mark .................................... 15/5

9. Trademark Rights Are Limited ..................................................................... 15/6

10. Only Federally Registered Marks Can Use the ® Symbol ............................ 15/7

16 Ten Things Inventors Should Know About Copyright

1. Copyright Protects Works of Authorship, Not Inventions ............................. 16/2

2. Copyright Can Protect Invention Design ..................................................... 16/3

3. You Can Make Money From Copyrights ...................................................... 16/5

4. Copyright Protection Is Limited ................................................................... 16/5

5. You Get A Copyright Whether or Not You Want It ....................................... 16/6

6. Copyright Protection Lasts a Long Time ...................................................... 16/6

7. Register Valuable Copyrights ....................................................................... 16/6

8. Use a Copyright Notice When You Publish Valuable Works ........................ 16/7