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Kit Rental vs Labor on invoices


Jeremy Katz

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Hello,

 

I am just wondering how to differentiate between kit rental and labor on invoices. I put them as separate line items, but as I understand it they are taxed differently from reading other posts on this forum ( I have done a search). If they production company cuts one check, can I then file the two separately myself when tax time comes around? I apologize if this is simple stuff, I am new to renting equipment. Thanks for any help. 

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when you receive your 1099  during tax season there will be a section on it called 'Non Employee compensation'- that is wages and will have a dollar amount for the money you earned. There will also be a section called 'Rents' also with a dollar amount. that will be the kit rental. Any accountant or Tax accounting software such as Turbo Tax will figure out the tax rate based on what is on your 1099

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In my experience most production companies do not enter this information properly, even when your invoices reflect labor vs. kit rental correctly.

 

So if I understand it correctly, that means that at the end of the year you have to request all of those documents be updated by the production companies prior to being able to complete your taxes, otherwise you risk paying higher taxes because of a failure to take advantage of the tax code in its current, legal form.

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The best situation is for the production company to issue 2 checks --- one for your labor and one for the equipment rental. If that cannot be accomplished I doubt that the production companies at the end of the year will be willing to re-do all their bookkeeping to reflect exactly what that one check was for. One thing you can do, if they only issue one check, is to make a split deposit (easily accomplished with Quicken, Quickbooks or almost any bookkeeping software) which will document the amounts paid by the one check. By entering a split deposit at the time of you receiving the check and making the deposit, this will be acceptable to the IRS (in much the same manner as a contemporaneous journal entry on the day is acceptable to the IRS).

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Yes. It's important to have 1099 reflect "rents" if that's what it is, and not have it all lumped into "non-employee compensation".

Whenever possible, try to get labor on payroll, or you're paying payroll taxes yourself, which chips away at your annual earnings.

But as Jeff pointed out while I was writing, keep accurate records. You can file any way you choose, and if you're ready with records, then audits shouldn't worry you. You can always show good faith effort to have the production reissue 1099.

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I would recommend having a separate company setup for handling rentals, even if it is not a corporation, just a filing for a DBA (doing business as) and then invoice separately as an individual for labor and company for rentals.  This should help keep it all separate and not have to explain things everytime to the production company.  It also has the advantage for those times that you go on payroll for jobs, you can still invoice separately for "box rental" and not have people question why you'd invoice if your a W-2 recipient.

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Getting too complicated.   Do as Jeff described!  Been doing it that way for over 35 years and never a hassle...split the entry when you deposit it and at the end of the year, your accounting software will spit out 1099 earnings and 1099 rental.  That is exactly how I label mine in Quicken for Mac!

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That doesn't address the fact that most production companies will incorrectly submit 1099-MISC forms at the end of the year.  You'll then have to contest the 1099 submission, or... just proceed and do the filing correctly on your side.  I don't think that alone would trigger an IRS inquiry or formal audit, but if it did, it would all come out in the wash at that time, so you'd be in the clear - just the process is a pain for yourself, and more importantly, the production company who might view you as a thorn in their side.  DBA is cheap, you don't have to change your filing status if you prefer to keep yourself a sole proprietor and not formally incorporate, and makes it easy for the production company since they can think of you as an individual and as an outside vendor.

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Quicken would work fine as your bookkeeping and record keeping software but it won't generate invoices or do any tracking of receivables, payments, etc. Using one of the many invoicing programs available you could do all your invoicing and just use Quicken to enter data. Quickbooks (even on the Mac though somewhat less capable than Windows version) could do all the business related stuff you need to do including generating invoices, etc.

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I agree. I've tried ALL the alternatives and I stick with Quicken/Quickbooks for all my personal and business accounting.

Jeff, what are you getting from Quicken/Quickbooks beyond what a spreadsheet program would give you? 

 

I use Numbers and keep a big spreadsheet where I put in all my pay stub and purchase info. But since a lot of those programs you're talking about aren't geared towards our work, I think it's a similar amount of data entry. 

At tax time, I use Turbo Tax which is cheaper in money than an accountant and I always hope my spreadsheet keeps the process cheaper in time too.

 

I know you did recommend Paid on a earlier thread, and I took a look at it. It looked good. I liked the invoicing aspect, but I end up filling out the standard kit rental sheets that I get from Productions anyways. It looks ideal for day-playing and commercials. 

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Quicken, Quickbooks, and most all of the other applications of this sort, have lots of things provided (that you may or may not need) over that which you have with a spreadsheet program (Excel, Numbers, etc.). Simple example would be Check printing. Another would be generating Reports for my accountant. Sure, if I were a proficient Excel or Numbers maven I could do worksheets for data entry, I could design data output to Report Spreadsheet, configure a Print routine, etc., but I'm not that good with spreadsheets. So many accountants work with Quickbooks for small businesses that it is an advantage, at least for me, that I can email Quickbooks files to my accountant and she can go to work on the account. Long ago I abandoned TurboTax (and a few other software programs to "assist" in tax filings) because of serious errors introduced by TurboTax. You're bookkeeping and accounting may be simpler than mine (and you might be a lot better equipped to do all of this on your own) but I need to rely on my accountant.

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I dont think I'm using Numbers to its fullest potential. I track all of the info on my pay stubs (Gross Pay, Federal Taxes, State Taxes, etc), partly to check the math (After subtracting all taxation, is the Net amount correct?) and to keep track of how much I've made in "after tax" money, 1099-"pre-tax" money, and how much I've spent in taxes. I keep a separate list of my purchases/expenses for the year, divided into categories (Equipment, Cable Parts, Dues, Rental) - this is simple SUM formulas. 

 

The most complex formula I have is where I've tried to simulate the IRS Publication 15 Tax tables. I used that to try to figure out how much tax would be owed on the amount of 1099 "Pre-tax" money that comes in. I factor in my expenses and subtract the taxes I've already paid and try to use the final number as a guide to judge if I'm going to get hit hard with owed taxes or if I've spent enough in expenses. 

 

But mostly, I use SUM formulas in the spreadsheet. I haven't found a need to cut checks and as much as I'd love to click a few drop down menus on the way to emailing out an invoice, I seem to end up using the printed out versions I get from Production. 

 

I do use Bento (because it's cheaper than FileMaker Pro) to try to keep an inventory on my gear. But I find that to be a tough battle no matter the computer program once you get past the big items onto calculating quantities and values for XLR cables I've made. Of course, the value in having a master list of your inventory is so if everything (and I mean everything) is gone, you aren't $20,000 short from the insurance company because you didn't add up all those XLRs, Custom Cables and Adaptors that float around.

 

Every tax season I think about going to an accountant. But I know that if I did, I would probably still run everything through Turbo Tax as well for comparison. With that sort of thinking, I, of course, have never gone to an accountant. Hopefully I'm doing things correctly. But I do like to keep up on what other programs people are using for this sort of thing in case something else were to work better. Like I said, I liked the PAID app you recommended. I just haven't found a reason to implement it. 

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Been using PAID for the better half of 2012 and on.  Really liking it so far.  For my payroll work I just started entering the pay stub info as a new invoice and when you enter the payment info for that invoice there are fields to enter the payroll company and witholding amount.  

 

Using the reports function you can create a monthly summary of all income as well as a witholding report to get an idea of where you stand on taxes.

 

You can also use it to manage your inventory if you like.  

 

I also use the big spreadsheet method but I'm starting to like PAID better.

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