Producer ... many years as an indie ... long time producing, recently gone indie ... from Brooklyn, NY.
Thanks for your response June on Don't incorporate just because the big boys tell you to.
I think that given the necessity of a separate business account and the possible negative impact on unemployment benefits...I'm going to insist they pay me as a 1099 contractor.
Going forward, I feel comfortable remaining as that, although my friend is telling me that there are so many more income tax benefits to being incorporated...I am finding it all very confusing.
Do you recommend that I buy your book to help me sort it out? Or pay someone to consult with me?
Thanks again June,
Kelly
Dear Kelly,
If I were to say to you: Do XYZ: It will make your life more complicated; Take up more time; Cost you money ... what would you say to me? I hope you'd ask me why you should do XYZ.
Your friend said to incorporate, because there are so many more tax benefits. Ask her to name one. Name two. Name three.
The main tax benefit to incorporation is for those making a lot of money. I'll use the following scenario as an example: Let's say most producers' net income is $100,000 per year. You, on the other hand, because of your years in the business and reputation make twice that because you are paid twice as much as other producers are paid. Your fee is doubled because of your reputation not the amount of time or effort you put into your work. Then half your net income could be taxed in a better way were you a corporation. If that scenario fits you, talk to a tax pro about incorporation.
There is no need to be confused. What you need is information. Start by reading these posts business entity -- incorporation .
I do strongly recommend that you read my book Self-employed Tax Solutions . As well as the basics on self-employment it thoroughly explains business deductions. Here's a Table of Contents.
Best,
June
PS Let me know what your friend says and where she got her info.
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5 comments:
From Kelly --
HA! Great answer. I sent it to my friend. :-)
Although, you say that if that were my situation (the BIG reputation earning me the big dollars) i would be taxed differently if i were a corporation...but you don't say if that's positive or negative.
Honestly, i need to buy your book and start with the basics. Your site has SO much info and many links to go and read, read, read - and you have several publications, that even just sorting through great advice seems like an undertaking! So I appreciate your recommendation on the earlier email and I will purchase it.
I'm just a regular producer making a regular wage - I thought of LLC to protect my assets...but it's not usually done by producers as far as I can see. I will start out as a 1099 sole proprietorship and go from there. Like I said earlier, I want to claim unemployment benefits so the less complicated the better...for now!
Thanks June, your guidance is most appreciated. If you were anywhere near me I'd hire you to consult, and so would all my confused entrepreneurial friends. :-)
To Kelly --
First, thank you. I fixed the post. It is more tax advantageous to be a corp in the example I sited.
And I am glad you mentioned all the info & not knowing where to start. There will be changes to my blog and my site in the near future. You are right: There is so much.
But a really good place to start for the basics is my book Self-employed Tax Solutions
Best,
June
Another reason to take a hard look at incorporation is the potential impact of the tax extenders bill that will be voted on soon in Congress. HR 4213 is going to have an impact on small S Corporations that is not fully appreciated yet. A major funding source for the benefits in the bill is to change employment taxes on professional S Corporations to more closely resemble an unincorporated business like a sole proprietorship, single member LLC, or partnership.
Thanks, Scott.
Altho' anecdotal and not a scientific study, my experience has been that many CPAs set up S-corps for clients in order to provide a fraudulent way for their clients to avoid paying self-employment tax -- the Sammy Segar CPA approach of calling it 10% earned income and 90% profit.
I understand the IRS' goal of getting all self-employeds to pay their fair share. The problem is that in attempting to rein in the cheats the legitimate s-corps get unnecessarily penalized.
Please let me know your thoughts on this.
June
I would rather not blame it on CPA’s entirely but of the cases I know about it is often a CPA that instigated the situation. Anyone who knows how the taxes are calculated might catch on to the idea, CPA, EA, Attorney, or otherwise. Another example of being too-smart is telling an older person in poor health to give away their assets so that they can qualify for government aid. It may be legal, but it isn’t necessarily right.
In many cases making the S election is the best thing to do in the case of a personal service activity if nothing else to avoid the extra cost of paying or avoiding the PSC tax.
There is this, too:
http://blog.pappastax.com/index.php/2010/06/14/may-tax-advisors-tell-their-clients-to-form-s-corporations-to-reduce-their-chances-of-audit/
You write a lot of good things in your blog, and as a Missouri CPA I have said some of the same things. The point of a small business is to keep the owner fed, clothed and housed, not to keep the tax people and the law people employed.
Followup on earlier post - when HR 4213 passed the section on S Corporation taxation was removed. That doesn't mean the issue is gone forever though - this is just a temporary reprieve.
Hi Scott,
You are right. I should not blame only CPAs. It is, however, the financial professionals who recommend this business structure to unknowing, unaware indies.
I will certainly point Missouri indies in your direction if they are in need of tax help. Please stay in touch.
Best,
June
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