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Old 11-04-2019, 03:06 PM   #1
Satriales
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Default Start an LLC?

Yeah yeah talk to my lawyer, I know. Just curious though - Im about to get paid for the first time - do I set up an LLC? Is that what folks here have done?

Thanks!
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Old 11-04-2019, 04:52 PM   #2
JoeBanks
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Default Re: Start an LLC?

As a lawyer, the answer is almost always... it depends!

Yes, there are tax advantages (especially under current tax law) to organizing as a loan-out for receipt of payment for services.

But, because there are also obligations that attach to getting paid as essentially an independent contractor (even if it's pass-through income to the LLC/corporation), it's not all just tax savings, e.g., now you're responsible for quarterly Soc. Sec. and FICA payments. There's a certain income threshold where forming an entity makes financial sense but I don't know what the current number is.
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Old 11-04-2019, 06:01 PM   #3
Bunker
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Default Re: Start an LLC?

(Disclaimer: I am not an accountant. You should talk to one. I find this whole part of the business as confusing as anyone.)

Whether or not you form an LLC depends on how much money you're making and how much money you're spending on business-related expenses.

In CA, an LLC has an $800 annual franchise tax. So, you'll be paying that every year, regardless of whether you make money.

An LLC makes it easier to write off expenses, especially in entertainment where a Netflix subscription is tax deductible. But you can also do that by setting up a DBA and getting an EIN. Then open a business banking account and keep track of all expenses that way as a sole-proprietor.

The main benefit of an LLC is the "limited liability" part. It means that a lawsuit can go after your business but not your house and personal savings. But because writers are often the only members of their business, they're still open to personal lawsuits regarding things like libel and copyright infringement.

Liability protections are really meant for, say, the owner of an equipment rental shop who has several employees. If one of the employees screws up a job and someone gets hurt, the owner's personal assets will be somewhat protected.

For a writer, it's not really necessary unless you're hiring support staff or have enough cash flow to justify it.

But again, accountants and lawyers understand this stuff better than me.
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Old 11-05-2019, 12:47 PM   #4
AnyOtherName
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Default Re: Start an LLC?

Quote:
Originally Posted by Bunker View Post
(Disclaimer: I am not an accountant. You should talk to one. I find this whole part of the business as confusing as anyone.)

Whether or not you form an LLC depends on how much money you're making and how much money you're spending on business-related expenses.

In CA, an LLC has an $800 annual franchise tax. So, you'll be paying that every year, regardless of whether you make money.

An LLC makes it easier to write off expenses, especially in entertainment where a Netflix subscription is tax deductible. But you can also do that by setting up a DBA and getting an EIN. Then open a business banking account and keep track of all expenses that way as a sole-proprietor.

The main benefit of an LLC is the "limited liability" part. It means that a lawsuit can go after your business but not your house and personal savings. But because writers are often the only members of their business, they're still open to personal lawsuits regarding things like libel and copyright infringement.

Liability protections are really meant for, say, the owner of an equipment rental shop who has several employees. If one of the employees screws up a job and someone gets hurt, the owner's personal assets will be somewhat protected.

For a writer, it's not really necessary unless you're hiring support staff or have enough cash flow to justify it.

But again, accountants and lawyers understand this stuff better than me.
Sorry, but, with the caveat that I too am not an accountant, I believe much of this is erroneous.

The primary benefit to having a loanout as a writer is that you can deduct business expenses-- especially, but not exclusively, commissions-- which you can NO LONGER DO ON A SCHEDULE A after the passage of the Republican tax bill in 2017.

So if you get paid 100k on a project and you have an agent, a manager, and a lawyer, and your tax rate is, say, 25%, including payroll taxes, you're looking at ~$25k in federal taxes without a loanout, or ~$18750 with a loanout-- a difference of $6250.

It's more complicated than that, of course-- on the one hand, with a loanout, you can deduct a million other business expenses which will further decrease your tax burden... while, on the other hand, you'll have to pay business taxes and higher payroll taxes (since you're the employer as well as the employee).

But no, there is no longer a way to deduct anything-- including your Netflix subscription-- without forming a loanout (unless you can convince the company to 1099 you, which no legit company will). I'd say if you're making even a modest amount from writing-- say, $70k+ per annum-- a loanout of some kind is a no-brainer.
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Old 11-05-2019, 01:09 PM   #5
Satriales
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Default Re: Start an LLC?

Thanks for the insight, all. Appreciate it.

Im going to be getting scale here so seems like it would make sense.

Thank you!
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Old 11-05-2019, 01:29 PM   #6
Bunker
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Default Re: Start an LLC?

Quote:
Originally Posted by AnyOtherName View Post
The primary benefit to having a loanout as a writer is that you can deduct business expenses-- especially, but not exclusively, commissions-- which you can NO LONGER DO ON A SCHEDULE A after the passage of the Republican tax bill in 2017.
Oh no! Yikes. Good to know and thanks for chiming in.

I guess the caveat I should have added is that I make my living 1099, and did it as a sole proprietorship for many years before 2018. Sorry if I led anyone astray!
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Old 11-05-2019, 02:28 PM   #7
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Default Re: Start an LLC?

i'm not sure i understand this fully but i think i have it right. i was looking at the tax rates on let's say $55,000.

based on California tax rates, if someone pays you outright in a one time lump sum it looks like that would fall under "day," correct? which means your rate is basically 50..9%?

https://neuvoo.com/tax-calculator/?i...ion=California daily rate

so that payment of $55,000 < 25% ($13,750 for reps) < 50.9% ($27,737) nets you a payout of:

$13,513

https://neuvoo.com/tax-calculator/?i...ion=California annual rate
under an LLC that $55,000<25% ($13,750 for reps) = $41,750 in a salary that your LLC can pay you out annually < 21% (year tax $11,612) = which gives you a net pay out of:

$30,138

so by drawing a monthly salary from your LLC you save on half the taxes. you have more funds readily available? am i understanding this correctly?

and if you, as an individual, file your taxes at the end of the year and you've only been paid once (and taxed at 50.9% would you technically be entitled to a refund of the difference between the tax rate at a "day," vs the tax rate for a "year?"

if so, the bad news is you have to wait til the next year to receive the benefit of the tax return? or can you opt to not pay taxes during the year (seems risky) and settle up on your taxes at the end of the year?

right - wrong? and if all that is true, it seems to me that it makes sense to get an LLC once you know you're going to get paid.

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Last edited by finalact4 : 11-08-2019 at 09:40 AM.
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Old 11-06-2019, 03:39 PM   #8
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Default Re: Start an LLC?

Who in the hell can understand all this except someone who works in the field professionally?

Get an accountant who is familiar with all these things.
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