Effect of new tax bill on freelance soundies?

[Jim Feeley]

This article looks helpful and is most likely well informed. I've know Chris and Trish for close to 25 years and they've always been wise and thorough with financial matters. Trish (who wrote this article; she and Chris share bylines) isn't an accountant, she's a motion-graphic designer. But that's fairly close to our sort of work, tax-wise...

 

The Accidental CFO: The Section 199A Deduction

Understanding the Qualified Business Income tax deduction for pass-through businesses

By Chris and Trish Meyer January 22, 2018 

 

What was Congress thinking, passing major tax reform a week before the holidays when there was still some serious shopping days left? Even if you did take time away from the festivities to read a few details of the Tax Cuts and Jobs Act of 2017, the media were so focused on the reduced rate for large corporations (now 21%, down from 35%), that you might have missed the fact that some rewards trickled down to small businesses as well. So without getting into the politics of the bill (tis what it is…), let’s focus on the new 20% deduction for qualified business income of pass-thru entities.

 

First, don’t panic. All the changes apply to 2018 income. When filing your taxes this April for the 2017 tax year, you’ll be following the same rules as for 2016. So even though the tax reform bill was passed hastily (with amendments scribbled in the margins in the dead of night), the IRS will have some time to clarify the details. However, if you like to file accurate estimated taxes for the first quarter of 2018 (deadline is April 16), then you’ll want to include this deduction (if you qualify) as well as take into account the lower rates and expanded tax brackets.

 

Second, I (Trish here) am not a financial or tax professional; I researched this deduction for our own situation (Crish Design is a Partnership, filing married jointly). For this article, I’m going to assume that you are a self-employed freelancer or small business (not an employee who receives W-2 wages) and that you provide professional services (the rules are a bit different if you manufacture widgets).

 

Third, you might want to make a nice cup of tea before you dive in. (And yes, reading about taxes means you also deserve a nice choccy biccy…)

 

Rest of the article:

https://www.provideocoalition.com/accidental-cfo-section-199a-deduction/

 

[BAB414]

Hey all,

 

For the third year in a row, I, as an unincorporated entity, will be owing the government money, and this year the most by far. The most recent thread I can find here about corporate structure is from 2011.

 

Are you guys finding anything we can do under current tax law to lessen the blow so to speak, and has anyone found that an S Corp is a truly effective way to deal with this? I'm seriously considering switching to an S Corp but I'm intimidated by the process of owning one and all the requirements.

[Jeff Wexler]

I'm hoping someone currently working has looked into this situation thoroughly and might post something here. I am sorry I am not able to answer any of these questions effectively for the current work environment and tax codes. In particular, the passage of AB-5 in California is being discussed on social media, since it evidently will have an affect on sound mixer's employment (union and non-union). From my own experience (which is ancient history now), I was one of only a handful sound mixers who incorporated and strived to put all of my work and equipment rental through the corporation. This was back in 1981 and all of my work had been union jobs  --- to get paid as "loan out" my corporation had to become an I.A. signatory and my company had to pay payroll taxes, SDI and benefits and then I had to bill the production company or studio to recover these expenses when I was on a job. The whole things was very difficult and costly. Somewhere along the way, the I.A. made  agreements that the production company or studio could pay a loan out corporation but the individual worker being loaned out would be treated just like a regular employee. For me, having a corporation was hugely beneficial even though there were significant costs, administration, battles with companies that did not want to pay the corporation, etc. 

 

Let's see what other people have to say about all of this.

[codyman]

The best advice I have received so far is to fill out sections 1 and 4 on the new W4 form.  Between that and the usual quarterly payments I make to Uncle Sam, hopefully that should prevent any tax bill shocks for the 2020 Tax year in 2021!  I see my accountant in a couple weeks and have already told her that I have a feeling I am going to need extra time at our appointment to discuss this and if I should incorporate.  To make matters even more complicated, I am getting married at the end of the year so that throws even another curve ball into the tax mix!  (love the gal, just not all the financial unknowns!)

 

I just worked with on a crew that was made of up LA and NY folks and it sounds like things are even more complicated back there between dealing with the new W4 and then also the city taxes.

[stacysound]

2 hours ago, codyman said:

The best advice I have received so far is to fill out sections 1 and 4 on the new W4 form.  

 

I just worked with on a crew that was made of up LA and NY folks and it sounds like things are even more complicated back there between dealing with the new W4 and then also the city taxes.

Do you mean sections 1 and 5? I spoke with the IRS about the new form. I was told that as long as sections 1 and 5 are complete, the form is complete. Use section 4 for additional withholdings (and confusion). 

[codyman]

30 minutes ago, stacysound said:

Do you mean sections 1 and 5? I spoke with the IRS about the new form. I was told that as long as sections 1 and 5 are complete, the for is complete. Use section 4 for additional withholdings (and confusion). 

You are correct.  Just looked up the form and yeah it is essentially the 1st and last section (Enter Personal Information // Sign Here).

[BAB414]

23 hours ago, Jeff Wexler said:

I'm hoping someone currently working has looked into this situation thoroughly and might post something here. I am sorry I am not able to answer any of these questions effectively for the current work environment and tax codes. In particular, the passage of AB-5 in California is being discussed on social media, since it evidently will have an affect on sound mixer's employment (union and non-union). From my own experience (which is ancient history now), I was one of only a handful sound mixers who incorporated and strived to put all of my work and equipment rental through the corporation. This was back in 1981 and all of my work had been union jobs  --- to get paid as "loan out" my corporation had to become an I.A. signatory and my company had to pay payroll taxes, SDI and benefits and then I had to bill the production company or studio to recover these expenses when I was on a job. The whole things was very difficult and costly. Somewhere along the way, the I.A. made  agreements that the production company or studio could pay a loan out corporation but the individual worker being loaned out would be treated just like a regular employee. For me, having a corporation was hugely beneficial even though there were significant costs, administration, battles with companies that did not want to pay the corporation, etc. 

 

Let's see what other people have to say about all of this.

Thanks Jeff. Sounds like a nightmare having to get between the IA and the networks but thank you for paving the way in your own way. I know nowadays a lot of high rental income earners are doing S corps, it seems like a viable way to control the flow of income to one as an individual, but maybe a pain to set up and operate.

[Philip Perkins]

Waiting and seeing.