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Are you a "business"?


Cory Kaseman
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Do you work simply as yourself, or under the name of a business?  When I started doing this I started up an LLC because people kept telling me I needed to keep my business and personal assets separate, mainly so if anyone ever tried to sue me for personal reasons, they couldn't take my sound gear, or if someone sued me for professional reasons, they couldn't take my personal assets (although I literally own nothing but my truck and my Playstation and the clothes in my closet).

It's kind of a pain in the ass though.  When I get paid, I can't just use that money for, say, my rent or my car insurance, because the money technically belongs to the business.  So I have to cut myself a check, as though I were working for someone else.  I have an accountant who takes care of things at the end of the year because I'm supremely stupid at numbers, but I think this also means that I'm having taxes withheld twice; once from whoever is paying my business, and once when my business pays me.  I'm probably wrong about that, but if not then it's just one more reason why I'm annoyed by this.  There are also apparently rules preventing me from paying 100% of the money to myself.  A certain amount of it has to stay within the business so I can show income and a profit for the business, pay off gear that the business purchased, etc.

All in all it's just very annoying and I'm wondering if anyone else goes through these same sorts of hassles.  Is it even necessary to operate under a business or do most guys just act as themselves, and take 100% of their paychecks for themselves?  I'm kind of miffed about making $500 and only being able to take home $300 of it, when I really need the whole amount to pay for my upcoming transmission rebuild, or whatever other expense happens to be rearing its head at any given time.  This whole thing was set up on the advice of an accountant friend of mine, who also did all of the work and charged me kind of a mind-blowing fee to make it all happen.  Lately I've had some issues with her and to be honest I'm starting to doubt her professional skill and wondering whether or not she gave me bad advice.

So I'm wondering what kind of situation other US mixers are in regarding this.  Are you a business?  If so, what kind (sole proprietorship, LLC, corp, etc)?  How do you deal with paying yourself?  Should I even bother with this whole hassle or should I just kill the LLC and start taking all my hard-earned money for myself?  Were the risks of personally owning my gear exaggerated?  Were the benefits of letting the business own it exaggerated?  Does anyone want to buy a truck with a broken transmission?

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I am curious about this thread too.  Other than myself, I know of at least one other mixer who just acts as himself.  No DBA, no LLC, no Inc.  He makes a great deal more than I do, and has always done it this way.

There are lots of other people here who are incorporated, etc., and although there have been other threads about this in the past, I am curious if things have changed in the tax laws, etc.  I am particularly interested about those living in Los Angeles, with considerable local and state business taxes to consider if set up as a "business".

Robert

Robert

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I am a sole prop LLC. You aren't being taxed twice at all and being a incorporated company allows you to write off alot more expenses and does protect you legally. It sounds to me IMHO that you need to seek the advise of another accountant in your area, Mine is very reasonable and charges me $375.00 a year for my business return including filing fees 2 meetings a year and I can call anytime to ask questions or seek his advice. So for me it is a good deal as I don't have to deal with anything I just send over my quick books file and 1099/ W2 then review the return and that is it. So you should talk to another tax professional

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I don't know guys and gals...been self employed since 1975, never set up a business, never a LLC, just me, an invoice pad (now computer) and my gear.  I seem to be OK in the tax deductions at the end of the year...never been sued. and for sure don't pay taxes twice.  Buy a reasonable amount of gear every year, write off what is fair and equitable and feel OK about the whole thing at the end of the year.  I have retirement plans I set up, ones supplied by an union agreement and only get charged $150 a year for the services of my accounting person, a meeting once a year and tax return preparation. 

cleve

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As a general rule if you make less then $100,000 an year IRS audit is highly unlikely.

UNLESS YOU ARE REALLY GREEDY AND TRY TO DEDUCT EVERYTHING YOU PAY FOR.

1099 is not a idea if you do not want to deal with a lot of bullshit.

Check your local CONTRACTOR LAWS.

I have heard from a little bird in Washington that IRS are hiring an insane number of auditors to recover a lot of the hidden taxes for the last 2 years.

I don't know guys and gals...been self employed since 1975, never set up a business, never a LLC, just me, an invoice pad (now computer) and my gear.  I seem to be OK in the tax deductions at the end of the year...never been sued. and for sure don't pay taxes twice.  Buy a reasonable amount of gear every year, write off what is fair and equitable and feel OK about the whole thing at the end of the year.  I have retirement plans I set up, ones supplied by an union agreement and only get charged $150 a year for the services of my accounting person, a meeting once a year and tax return preparation. 

cleve

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$375.00 a year

Good lord.  I'm absolutely finding a new accountant.  I literally paid triple that for my taxes this past year.  I went with this person initially because she is a family friend.  Looks like that was a mistake.  She charges out the wazoo, apparently, and is rarely available to answer questions.  She also filed my mother's personal taxes like 2 months late and gave the wrong address.  That particular situation is why I started doubting the accountant in the first place.

EDIT:  Forgot to ask, to Whitney

Do you have to write yourself paychecks and keep a certain amount of the money you make within the business?  How's it work for sole proprietorship?  I'm currently an S-corp and have a business partner who is co-owner, but she will be backing out and giving over the entire business to me when I move out of state, so unless I decide to just scrap the whole business thing altogether, I will probably change it to a SP

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My only advice would be to scale the complexity if your business setup to the work you get.  If you are going to run a rental business separate from your own gigs, have employees of any kind, deal directly with large corporations (incl movie studios and TV networks) then you should get set up in a way that they recognize and are used to.  If you are just selling your labor as a free-lancer and a small package to production companies who are only slightly more organized than you are, then being a sole prop. and having checks made out to you personally makes more sense.  Also, since you were considering moving, you might want to wait and see what the soundie-freelancers in your new state are doing, what has made sense for them.

phil p

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EDIT:  Forgot to ask, to Whitney

Do you have to write yourself paychecks and keep a certain amount of the money you make within the business?  How's it work for sole proprietorship?  I'm currently an S-corp and have a business partner who is co-owner, but she will be backing out and giving over the entire business to me when I move out of state, so unless I decide to just scrap the whole business thing altogether, I will probably change it to a SP

I am an LLC with a S Corp designation. I do alot of work on payroll service so I live on that mostly and all the rental goes to my company. So usually I pay self twice a year out of my company in two larger chunks but I could take a monthly or weekly draw if I wanted to.

So to answer your question I keep most of my cash in my company but my company pays 75 percent of my expenses. This is just the way I prefer to do it.

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I'm waiting for more consistent work and upgrading to a better pay bracket before I do any business legalizing paperwork.  I have a few CPA friends already, and they tell me "technically" I am a business already.  For what I do now, insurance seems more of a priority than being an LLC or whatever....  I'm curious as to how long from now before I look back at this post with a totally different point of view.

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I started out as an individual, then went to a DBA, then went to an 'S' Corp.  The progression moved in regard to the Tax position.  There is a moving target as to where the Tax position is better for a Corp than for a DBA.  You have to weigh in the cost of operation of the Corp as well.  There are quite a few fees involved as well as the bookkeeping aspect.  Let's just say...lots more paperwork.

The advantages of a complete separation of the business as a Corp and personal finances are also to be considered.

A tax accountant familiar with the entertainment industry is invaluable when it comes to this sort of thing.  Especially when you get audited, which I have.  I'm with Mr. Bondelev on the $$ figure for a proper accountant fee.

PWP

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The question of whether or not to incorporate is complex and beyond the scope of a discussion group. At some point you may need to review the matter with an attorney.

If your only business income and expenses are derived from assignments where you are hired to perform work and you also provide equipment, you can probably work legitimately as a “Schedule C” business. This permits deducting expenses (supplies, equipment purchases, vehicle expenses, etc.) without the more extensive paperwork demanded of a corporation. If your business goes beyond renting the gear you bring to jobs or if the size and scope of those jobs grows (you are hired as the mixer on a network TV show), you may wish to reevaluate your situation with a pro.

Even at the lower level of operation, you ought to carefully keep your business spending and income separate from your personal affairs. At the very least, you should have a separate business checking account and a business credit card. You may also find it useful to have a mail drop as a business address.

If you live or work in Los Angeles, you also need to register your business with the city and pay city business taxes. This applies whether or not you are incorporated. The city has been making it a practice to comb through state tax returns looking for Schedule C businesses that are not registered. If you live or work in the city and claim deductions for an unregistered business, they will send you a letter seeking back taxes for all the years you claimed those deductions. It can be a most unpleasant wake up.

It’s much better to register your business before they find you as a tax delinquent. If you are voluntarily coming forward as an honest citizen to pay your taxes, no one will dispute your claim that yours is a brand new business. They’re not interested in spelunking through old data to find evidence of deductions taken in the past. I don’t recall the actual tax rate but, by and large, it is not too onerous for people in our profession. They take a cut based on gross business receipts rather than profits and this is a potential problem with companies that may have risky ventures with high cash turnovers. And, parenthetically, it’s one of the reasons that certain kinds of businesses are often incorporated in the Sunset Strip rather than elsewhere in town. But for sound professionals, it shouldn’t be a problem.

Even better, there is a tax exemption for any business with less than $100,000 of receipts in a single year (if I remember the number correctly). Remember, that’s not $100,000 of your gross income; it’s $100,000 of your equipment rentals. Presumably, your professional service earnings are separate. So, for most practitioners, the tax is likely to be zero. I think the exemption may not apply in the first year so you may have to pay about $100 to get your business registered. Afterwards, though, the tax is waived unless you exceed $100K or forget and must pay late.

After registering, you will get a nice little certificate from the city that you could frame and hang on the wall in the central office of your world-wide enterprise. You could also scan the document so you have a copy to provide to production companies. I have had companies, even major studios, demand that I provide evidence of incorporation before they would pay me for equipment rentals. So far, every one of them has accepted a copy of the business license instead.

David Waelder

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