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Philip Perkins

Effect of new tax bill on freelance soundies?

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I am not looking to start a political discussion here.  I'm asking about what the real effect on the tax situation of what I think of as a typical JWS member will be of the new tax bill that seems likely to pass in the next few days.   By typical I mean someone who is running a 1-person indie sound business, mostly as a location sound mixer using gear they own themselves, and who has many currently deductible small-business type tax expenses.  I've read everything from dire warnings about the loss of any deductions for home office, tools, office supplies, advertising, travel, phone, mileage, continuing ed., etc etc to others saying that all that isn't true.   What does anyone know about this, substantively?   If you have a tax advisor, what have they told you about this?  Again--I'm not wanting to start a pro vs. con or Repub v. Demo discussion here; I'm looking for practical strategies to deal with what kind of looks like it will be the new tax reality for many of us.

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Reading the reports in the paper and the web, it is never really addressed how it might effect the small business owners other than a lowering of the tax rate on 25% of business income. There is also no reports about what we might lose in the schedule C that the unincorporated file. A lot of time we never find out the details until the final bill is passed into law and then the IRS has to go through all the forms to fix any changes in the tax code. The big gains or losses might be tied to the 1040. So if in doubt, buy all the new equipment that you can afford before the first of the year.

 

Scott 

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I have no idea. And as Scott says, the bill isn't finalized. But still worth digging into (and perhaps calling your congresspeople).

 

Looks like entertainment deductions might go away. And it looks like both the House and Senate versions of the bill allow 100-percent immediate write-offs of biz equipment purchases...rather than multiyear depreciation. As for the more complex stuff...

 

Here are two of the better articles I've found that I think address the issues of people like us:

 

The Impact of the Senate and House Tax Bills on the Small-Business Owner

https://www.entrepreneur.com/video/305114

 

8 small business losers [and some winners] under Republicans' tax bill

https://www.usatoday.com/story/money/columnist/abrams/2017/11/15/8-small-business-losers-under-republicans-tax-bill/862597001/

 

 

What have others heard or been told by reliable sources?

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Not really related to sound mixers but I am watching closely the mortgage interest deduction. 

They are trying to recover 145 billion on the back of people who have a mortgage. That would prevent intelegent people from  buying or keeping a house and might burst the real estate market which is already close to pre 2008 prices level and it has to go down in at least most of the markets. 

 

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Accounting firm KPMG has posted a long document, dated today, that they say is the official summary of the current version.

 

I am not an accountant, and it takes one to make sense out of this. As near as I can tell:

        1)  While 'entertainers' are specifically excluded, us crafts that support the performers can still deduct for our operating expenses.

        2)  Our expenses are limited to 17.5% of our billing. After that and any straight depreciation, the rest of our billings are treated as conventional income. 

             This seems radically different -- and much worse for us -- than the current situation that appears to allow full 'necessary and regular' expenses and accelerated depreciation on gear. That's as near as I can tell. But I'm not an accountant or lawyer.

        3)  There is a much more liberal (i.e., cheaper) tax rule for passive investors in a business. I'm sure it's intended to preserve tax breaks for rich folks who buy real estate partnerships or golf courses or congressmen... but I wonder if it would let me invest in and only claim income from a friend's pro activities, while they invest in and claim mine. Probably not. :mellow:

 

Of course this can all change, up to the moment the Senate votes. And then change again during reconciliation. I have no idea how a senator of conscience (there have to be some) can decide how to vote on their own while things are still fluid, rather than just accept the leadership's marching orders.

 

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Well researched Jay.

 

New Zealand is well stocked with small businesses and they are the biggest tax take for the government.

 

I have long operated as a company know as a "limited" company which offers a degree of protection for your

personal assets.

 

I wonder if you guys in the US operate in the same way or indeed others in the international world of sound.

 

Perhaps like one of our big food companies we could call sound recording a religion and pay no tax!!!

 

Regards

 

mike

 

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I find it interesting in this whole debate that a couple of the hold out senators (whom I believe are now yes votes) had major concerns over the tax plan not giving big enough breaks to pass through corporations.  I don't know how many here operate as pass through corps, but it's something I'm watching closely.

The senate bill includes a 17.4 % deduction for pass through corps and sole props, which sounds like a good benefit, however it is limited to 50% of the salary of an owner of a pass through corp (not sure about sole props), so it's benefit is more limited than it seems at first.  It may still help some, but not the major reduction big corporations are going to get. Combine that with the fact that the personal tax rate cuts expire after ten years, as I believe the 17.4% deduction does too, so they can meet the budget rules, it seems like a temporary and modest cut at best.

Despite all the talk about cuts for small businesses, I just don't see it.

 

There is an increase in the section 179 deduction cap raising it to $1,000,000.  Considering the current section 179 cap is $510,000, I don't see this helping anyone here, as we all can elect to write off our entire gear purchases in the year we make them instead of depreciating them if we want (assuming you bought less than $510,000 worth of equipment in this year).

 

The mortgage interest deduction could have a lot of impacts if it makes it through.  The house plan cuts the limit down from 1 million to $500,000.  The senate plan leaves the current $1,000,000 cap in place, so this will come down to reconciliation (if it succeeds).  Either way, this will at worst only affect people who have mortgages over $500,000.

 

Getting rid of the State and Local Tax Deduction could be a big hit those who live in states with income taxes.  There are a few senators unhappy with ditching the SALT deductions, so I can only hope they make a last minute change to bring it back, otherwise those who live in states with income tax, unless at the highest tax brackets, are likely in for a tax increase, not a tax cut.

 

Thank you for the link @Jay Rose, that is the most comprehensive piece I've seen yet.  I haven't found the part you refer to that would limit our expenses to 17.5% of our billing.  Can you tell me what page that is on?

 

Of course a lot of this can change before the senate bill gets voted on, and a lot more will change if it goes to reconciliation.  I'm guessing this is why my accountant didn't want to weigh in when I asked her about it.  

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Mike,

 

We have Limited Liability Corporations and Professional Corporations, often used as a shield by high-earning professionals. We also have "subchapter S" corporations, which are regular corporations but let the owners pay tax at their personal rates rather than a corporate rate, which can be an advantage for someone just starting out.

 

IANAL. I also didn't have a good lawyer when I started Sound, Inc in the 1970s, so it got registered as a regular -- not "Sub-S" -- corporation. That came back to bite me when I sold its assets profitably in the mid-80s; I had to totally dissolve the company, and not start another one in the same business for a number of years, in order to compensate. (Yes, I could still work as a sound designer. I could even start a new studio. I just couldn't incorporate it)

 

Moral: you need a good lawyer, accountant, or both. Trying to start a business on a shoestring is fine, but trying to guess your way through business technicalities yourself or with a newbie... is about as sensible as hiring a $100/day production mixer with "a couple of SM58s" and experience mixing bands in bars for your no-budget shoot. 

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As far as my accountant (a real protector of Schedule C self employed) can tell, most, if not all deductions for self employed, will be removed from consideration. So, expenses like vehicle, supplies, office, may not be deductible. Union dues are still unclear. Almost certainly, entertainment and promotion will be crushed. I think we're fucked and will pay more taxes. Medical and home mortgage interest and state taxes, and property taxes, in some unclear formula,  shall be removed from consideration.  Triple Fucked. Arrrrrrrgh.

Cheers~~~~~~~~~ Mourning the collapse of our democracy and middle class.

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Democracy isn't collapsing. It's just returning to the time when only nobles and landowners (the .1%, back then) had any say. 

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On 11/30/2017 at 10:42 AM, Jim Feeley said:

I have no idea. And as Scott says, the bill isn't finalized. But still worth digging into (and perhaps calling your congresspeople).

...

What have others heard or been told by reliable sources?

This thread has enough information to send shudders down the spine of most freelancers in the US. If anyone on this board has connections with mainstream media, thinking CNN et. al., I would get them on this story. Most journalists hang with freelancers professionally so they would have an ear for this kind of story.

 

This really stinks.

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Yeah, it will be great for the economy, since all small businesses will have zero incentive to upgrade or buy anything in terms of equipment, vehicles, phones, computers, office supplies etc. (/sarcasm off)

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One good improvement:  Denial of deduction for settlements subject to nondisclosure agreements paid in connection with sexual harassment or sexual abuse

Reasons for Change

The Committee believes that taxpayers should not be able to deduct as normal business expenses settlement payments subject to nondisclosure agreements that relate to sexual harassment or sexual abuse

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The bill was only released to the public (and Democrats) around 17:30 EST Friday afternoon. It’s over 500 pages long, and the House is scheduled to vote on Tuesday.
I don’t see any way there will be a CBO score, and obviously no public hearings to discuss it.

I’m guessing a bunch of accountants and economists will spend the weekend crunching numbers. Kind of wild that *if* this passes next week, it goes into effect on January 1st 2018. As of right now, the Republicans seem to have enough votes to pass it themselves.
I did hear they are removing the ability to take a deduction on your federal taxes for state taxes, which is specifically a big Republican F U to the people of California, NJ and New York.

"We have to pass the bill to see what's in the bill" - Pelosi



Yet the ACA still had over 30 hearings.
This tax plan had zero. The senate plan was handed to the democrats, and public, 2 hours before they voted on a 400+ page plan. They wouldn’t have to hide the details if it was good legislation.

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Based on what I just read on a CNN crawler on a monitor at the airport, several things in the bill have been changed including some just mentioned.

 

But, please, let's all follow Philip's intent to keep this non-partisan as that will help us keep the focus on our profession and how we're affected.

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Yes the tax bill is partisan but that was a sure thing from the get-go.  Variety mag was pretty specific in ways that actors particularly will be hit by this thing unless they have or make "loan-out" companies.    For matters pertaining just to free-lance soundies (exclusive of what happens to their taxes as just regular citizens --ie the state tax deduction etc) so far things don't seem to be changing that much for "independent contractors" doing a lot of Schedule C deductions.  Of course, at the same time, both the IRS and state tax boards are still on the warpath about "employee classification" re: who is and who is not really an "independent contractor".

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5 hours ago, Philip Perkins said:

things don't seem to be changing that much for "independent contractors" doing a lot of Schedule C deductions.

 

True, at first glance/not worrying about it too much; it looks like a tax cut and I'll see what happens in April. I have gotten into the habit early on to take zero deductions no matter how painful it is, with the reasoning the the higher tax bill has an upside in a higher Social Security payout down the road. "It only hurts when you look at the numbers."

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