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View Full Version : Prop 30 passed...now what?


scripto80
11-07-2012, 11:04 AM
ETA: Someone clarified that I had the tax process wrong. Great! That's less scary, and a relief, but still I think this 10% increase on those making over $250k will negatively impact the industry.

ATB
11-07-2012, 11:05 AM
Just ask for $249K :cool:

scripto80
11-07-2012, 11:06 AM
HA! Right?

ATB
11-07-2012, 11:08 AM
I'm kinda serious. I mean, what kinda difference in profit margin are you looking at between 249K and 250K? Would be interesting to know.

Chief
11-07-2012, 11:21 AM
Live in Dubai.

Manchester
11-07-2012, 11:29 AM
I believe that a lot of that comes off the top - i.e., it would be $250K after you pay your agent/manager. Also, are the new rates marginal (i.e., a new/higher rate only for dollars in excess of $250K) or for even your first dollar?

Or you and some other working writers could start a writers' commune in Nevada (for your tax domicile), and with the money you save, you get a timeshare helicopter for the trips to/from LA.

Hamboogul
11-07-2012, 11:30 AM
Well instead of netting $45,000 a year from a $250k gross, you'll be netting approx $70,000 a year from a $249k gross. Pretty crazy.

i don't think you understand the business or tax structures.

Knaight
11-07-2012, 11:31 AM
I haven't been following this law, so perhaps I'm incorrect, but with the way taxes generally work, you would only pay 56% on everything ABOVE $250K.

So even if you have a 350K sale:

Take out manager, lawyer, agent, and WGA: $257,250

I'm ballparking here, but I believe you'll wind up losing about 30% of that first $250K. That leaves you with $175K from that lump sum.

Now take out 56% of 7,250, and you have another $3,190, for a total of $178,190. Not a bad take.

ToddC
11-07-2012, 11:41 AM
Well, now if you make $250k or more, your grand total on federal + state taxes if you live in Cali just skyrocketed to a whopping 56%. When you combine that with an agent, manager, union fees, lawyer, and accountant, then you're looking at bringing home about $45,000.

What about the sales taxes?

Property Taxes?

Gas Taxes?

Carbon Tax (http://www.bloomberg.com/news/2012-11-07/obama-may-levy-carbon-tax-to-cut-the-u-s-deficit-hsbc-says.html)?

And have you factored in the Jan 1st expiration of the Bush Tax Cut?

Oh, and you'll need to buy health insurance or pay a penalty-- which according to the Supreme Court is actually a "tax".

Can I mention the decreased value of the dollar you earned?

I'm not being partisan, this is what we are paying.

Just ask for $249K :cool:

The $250k figure came from the President's tax proposal going back to 2008. Two things are guaranteed here... First, that tax will be impossible to repeal & second the $250k will eventually shrink to lower numbers as gov't spending continues to rise.

Breakdown of Prop 30 (http://ballotpedia.org/wiki/index.php/California_Proposition_30,_Sales_and_Income_Tax_In crease_(2012))

Three things you can do-- Accept living inside a washing machine, earn more than $1m, or raise your fees to even out the tax increases.

scripto80
11-07-2012, 11:42 AM
I believe that a lot of that comes off the top - i.e., it would be $250K after you pay your agent/manager. Also, are the new rates marginal (i.e., a new/higher rate only for dollars in excess of $250K) or for even your first dollar?

I don't know, I'm not an accountant. I'm just thinking worst case scenario/how it seems. If there's an accountant or tax lawyer in the house, please let us know how this will work.

Also, don't some agents take the paycheck, take their part, then cut you the rest, thus ensuring that they can effectively count you as their employee instead of the other way around, so you cannot take them off?

By the way Hamboogul, I know how the industry works overall. I don't however know much about taxes and agents' financial/tax processes, nor do I claim to, but thanks. I'll reword my initial post though so it's more of a question, which is what I meant it as, since I don't know for sure.

p.s. ToddC, what you said about fee increase.... See, I can't stop imagining the unions deciding to fight for better minimums to combat this tax hike, and thus we wind up with strikes which then put Hollywood at a stand still and seriously impacts state revenue which flies right in the face of the point of the hike in the first place which was to increase revenue and "benefit education".

Manchester
11-07-2012, 11:52 AM
I don't know, I'm not an accountant. I'm just thinking worst case scenario/how it seems. If there's an accountant or tax lawyer in the house, please let us know how this will work.

Also, don't some agents take the paycheck, take their part, then cut you the rest, thus ensuring that they can effectively count you as their employee instead of the other way around, so you cannot take them off?
How about this: I hook you up with an industry accountant for your taxes and you hook me up with a movie producer for my comedy?

But seriously... This post of yours shows that you don't have any idea how taxes work - well, at this level of what's included, what's deducted. Which is fine, since that's not your job.

For example - No, an agent can't list you as an employee as you suggest. And if he/she did, he/she would have to pay unemployment taxes for you (and maybe Workers' Comp) and the employer's half of FICA and a whole bunch of other stuff. And even if he/she could... Again, you'd end up only owing taxes on that net after your agent took out his/her cut.

scripto80
11-07-2012, 12:04 PM
Thanks for the clarification. Less scary, but still a problem.

See, I come from a state that has no state tax and a reasonable sales tax and isn't in a huge financial hell hole. And thankfully my first sale is coming while I'm still a resident here. But, I've always wanted to move to L.A. I love it for the weather, my friends out there, and obviously the industry hub...but when I see Cali pass Prop 30 while shooting down Prop 37...I can't help but rethink the idea.

JoeBanks
11-07-2012, 12:08 PM
as one of thousands of broke-ass aspirants who lives in LA, i would be happy to have one of them Marlo Stanfield "good problems" of how to deal with the tax issues of being a paid, working writer in the business. give me the job and i'm sure i'll figure something out. don't believe all the bullshit on Fox News about what a financial hell-hole California is. Prop 13 is the GOP's everlasting gift of broken budgets to the state but we're still the 8th largest GDP in the *world* LA is expensive just like New York and London and every other big city around the world is expensive. if you want cheap, live somewhere else.

carcar
11-07-2012, 12:18 PM
If you're making that kind of money, you're probably qualified for WGA health insurance, so >whew<, one less worry there.:D

But I'd love to hear what one of the guys on here who's actually got that problem says.

I should have such problems.

emily blake
11-07-2012, 01:27 PM
So we're leaving this thread open for now.

Try to talk about this issue without discussing politics or being offensive, please.

mikejc
11-07-2012, 04:36 PM
I know there was an earlier closed thread on this, but it contained some major misinformation.

The extra tax on those making over $250K only is assessed on income over $250k.

So, if you made $260k, the new tax would only apply to the last $10,000.

Done Deal Pro
11-07-2012, 04:55 PM
And one side note I might add to all this since I know a couple of writers who have mentioned this to me, you rarely get a full pay out. There is normally a set plan of payments based on meeting certain writing goals, so at least in some circumstances, especially for an early deal in your career, you may actually see the payout spread over two different years. (Also I believe it helped with keeping WGA insurance.)

But as a few others have noted, receiving that much money or more is not such a bad "problem" to have. Plus accountants can sometimes work wonders, especially when you use a loan out company.

Wes Tooke
11-07-2012, 05:31 PM
As a writer, you'd have to make a lot more than 250k in a year to be caught by the new tax. For example:

Imagine that your writing income is 400k. You will have set up a loanout corp (due to the AMT the expected-income number for establishing a corp is much lower than it used to be; some accountants say as low as 150k depending on the other variables in your financial situation.)

So you run the income through the corp...

-25% goes to agent/manager/lawyer (
-You subtract all business expenses plus health care (if you're paying off a car, traveling and entertaining a bit, and have a family this can easily be 30k)
-You are allowed to set aside a chunk of cash for an individual retirement account. (Imagine you're able to spare 20k).

The income that you as an individual actually take that year is already only 250k. And that's before you take personal exemptions for dependents, etc.

All of the above is really just to illustrate that if you begin making real money as a writer, I recommend that you immediately set a meeting with an accountant who is familiar with the business. They will save you a lot of cash and a lot of grief.

ATB
11-07-2012, 05:36 PM
Plus accountants can sometimes work wonders, especially when you use a loan out company.

Just hire Romney's accountant. 14%? Yes, please.

All joking aside, though, a loan out co. is the way to go. As I understand it, you essentially become an employee of yourself, so the only income that gets taxed would be whatever is leftover after the "company's" expenses. Essentially your employee salary.

(Correct me if I'm wrong, please).

Hamboogul
11-07-2012, 06:10 PM
Wes Tooke will do my taxes.

Wes Tooke
11-07-2012, 08:51 PM
All joking aside, though, a loan out co. is the way to go. As I understand it, you essentially become an employee of yourself, so the only income that gets taxed would be whatever is leftover after the "company's" expenses. Essentially your employee salary.

(Correct me if I'm wrong, please).

Yeah, that's basically it. Your company gets "hired" to create a script. You are the president of said company, and therefore can write checks or have a credit card to pay any corporate expenses. Those include commissions, retirement, health, etc for the employee (you).

At the end of the year the company needs to be revenue neutral (show zero profit or loss) so you take whatever is left as "salary." That's the amount that you report on your personal tax return.

One of the financial advantages of the above system is that all of your expenses are in pre-tax dollars. If you're in a high tax bracket you're basically getting anything that your company can buy at a huge discount. You also have a lot more flexibility to move income from year to year because your company's fiscal year doesn't have to end in December--that's a huge deal for screenwriters who might make a lot one year and almost nothing the next.

Once again, the above is only for discussion purposes; if you find yourself in this situation, take a free consult with one of the 10-15 firms that specialize in this kind of work. But DON'T be convinced that you need a business manager at 5% of your income; you can hire someone competent on a flat rate, pay your own rent check, and save yourself a lot of money.

carcar
11-07-2012, 08:54 PM
This is good information. Glad this got kept open.

ATB
11-07-2012, 09:03 PM
Agreed, carcar. This, in particular, is something I didn't know:
You also have a lot more flexibility to move income from year to year because your company's fiscal year doesn't have to end in December--that's a huge deal for screenwriters who might make a lot one year and almost nothing the next.

Surprising and comforting.

artisone
11-07-2012, 09:30 PM
Also, you write off your agent, manager, lawyer and union dues. This brings down your tax liability which often results in a nice tax refund.

Wes Tooke
11-07-2012, 09:39 PM
Also, you write off your agent, manager, lawyer and union dues. This brings down your tax liability which often results in a nice tax refund.

No, this is the point of a loanout. You pay all of those through the corp.

The reason is the point I referenced earlier about the Alternative Minimum Tax... basically, if you try to write off that high a percentage of your income (25%) in your personal tax returns and you fall in a certain tax category, you will be caught by the AMT and forced to pay a much higher percentage--essentially it's as if you can't write off more than half. That's why a loanout now makes sense for people at lower income levels than before (the costs of incorporation and accounting aren't insignificant).

Also, note that you rarely get a refund because nobody is withholding your taxes. You have to file quarterly on your own, so the only way you would get a refund is if you overestimated your own liability.

Rantanplan
11-07-2012, 09:57 PM
If you sell a book or a screenplay for X amount of dollars, and those dollars first go through an agent who takes out commission before writing YOU a check, well then the new amount IS your income. That is what appears on your bank account. So why all the math?

Wes Tooke
11-08-2012, 10:30 AM
If you sell a book or a screenplay for X amount of dollars, and those dollars first go through an agent who takes out commission before writing YOU a check, well then the new amount IS your income. That is what appears on your bank account. So why all the math?

Because that's not the way the law works. The amount the studio/publisher pays you is your income. The amount the agent subtracts is a deduction. If you think that's unfair, write your representative. But if you don't do "the math," you're going to have a problem with the IRS.

scripto80
11-08-2012, 11:37 AM
Interesting replies, all.

I dun be gettin' me a tax edumakasheon.

:)

artisone
11-08-2012, 04:07 PM
No, this is the point of a loanout. You pay all of those through the corp.

The reason is the point I referenced earlier about the Alternative Minimum Tax... basically, if you try to write off that high a percentage of your income (25%) in your personal tax returns and you fall in a certain tax category, you will be caught by the AMT and forced to pay a much higher percentage--essentially it's as if you can't write off more than half. That's why a loanout now makes sense for people at lower income levels than before (the costs of incorporation and accounting aren't insignificant).

Also, note that you rarely get a refund because nobody is withholding your taxes. You have to file quarterly on your own, so the only way you would get a refund is if you overestimated your own liability.

You can still write it off even if you don't have a loan out. A lot of businesses file as individuals, and although you don't qualify for many of the tax breaks available to a corp., there are others you can use.

Manchester
11-08-2012, 04:22 PM
You can still write it off even if you don't have a loan out. A lot of businesses file as individuals, and although you don't qualify for many of the tax breaks available to a corp., there are others you can use.
But Wes Tooke's point was you can only do that until... you hit the AMT.

(When the AMT was enacted, it made tons of political sense, but as a matter of tax and economic policy, it doesn't make sense at all.)

Wes Tooke
11-08-2012, 04:28 PM
You can still write it off even if you don't have a loan out. A lot of businesses file as individuals, and although you don't qualify for many of the tax breaks available to a corp., there are others you can use.

Once again, this is why I mentioned the alternative minimum tax. After you get above a certain income level you will be caught by the AMT, which means that you won't be able to file expenses like a standard taxpayer.

Before arguing further please read here:

http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

ETA: What Manchester said... we posted at the same time.