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Old 06-25-2007, 05:33 PM   #11
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Join Date: May 2006
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Default Re: Let's say you make 200K on your script...

I'm no expert at this, but doesn't writing off the tax for expenses only apply if you set up your own company whereby you're the only employee? You, say, pay yourself -- the sole employee -- a lower salary to ensure you're paying a lower tax bracket, and the rest of the "untaxable" money goes under the "company" name.

So, any purchases required to operate as a writer -- hotels, car, gas, paper, stationary, printers, office rental, meals, "networking" events -- can be written off as company expenses.

But, of course, you could be audited if all of your expenses aren't legit e.g. buying a boat with company money.

I do know that this is how a lot of independent contractors with a specialist skill operate. And I do know that this is what "how to get rich" type books teach you about managing your finances effectively.

Perhaps something to look into and consider...
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Old 06-25-2007, 05:46 PM   #12
Han Shot First
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Default Re: Let's say you make 200K on your script...

You don't pay yourself a salary in this case (I believe) because you don't have employees. So it's really just REVENUE - EXPENSES = PROFIT (this is dumbing it way down). Your business revenue minus business expenses equals the taxable portion, your profit.

One of the great things about succeeding in this business, I think, is the financial freedom it gives you to put your money to work better for you than it's doing when you're working as a salaried corporate shill. It's much, much more flexible and you should be able to make it go much further than it would otherwise.
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Old 06-26-2007, 12:01 AM   #13
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Default Re: Let's say you make 200K on your script...

Most working screenwriters are incorporated as a 'loan out' corporation. The studio pays your corp to 'loan out' your services to them.

Commissions (mine are 30% -- Agents, Managers, Lawyer, Biz Manager)come out of your gross, expenses as well, and usually the corp zeroes out at the end of the year by paying you what's left as salary. Basically you operate a zero profit corporation.

I find that I net between 40 and 50% depending on how much I expense.
RIP Lew Gastoni.
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Old 06-29-2007, 12:27 PM   #14
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Default Re: Let's say you make 200K on your script...

Incorporating tends to get more valuable as your income and especially your expenses rise over time.

Several benefits of incorporation:

-Revenues to the business come in as gross income. This means you can control your money and when you choose to pay it to the IRS

-Corporation allows you to deduct all medical expenses OUT OF GROSS REVENUES. This can add up if you have therapy, regular medical bills, occupational or speech therapy for a a child, etc.

-Corp allows you to deduct anything associated with your business out of gross revenues, all the while lowering your actual taxable income. Cars, travel, meals and entertainment, portion of cable TV, movie tickets, all books and periodicals, office space in the home, outside the home, phones, cell phones, all medical, agents, lawyers, guild - this adds up to quite a lot of stuff you spend money on. It's all paid for out of your gross.

-Corp allows you to form SEP/IRA, a very powerful savings tool. You can put away up to 42K a year into a personal tax-exempt retirement savings fund - this is the best part - OUT OF GROSS REVENUE. You are essentially setting up a pension plan for the president of the company - yourself. Being able to take that much money off the top of your earnings is a stunningly powerful financial tool. Because in addition to getting that money into a personal retirement account, it is ledgered as a BUSINESS EXPENSE out of the corporation - thus decreasing your taxable income.

-You write yourself monthly, quarterly, or if you want to stretch it, annual paycheck for your services. This is your taxable income. Let's say you earn 500K. You could conceivably with agents, lawyers, all expenses have up to 150 - 200K in deductions. That means 300K is actual income. Progressive rates apply. And you can knock the personal income down further with mortgage tax deduction, spouse business expenses, charitable giving etc.

-MOST IMPORTANT thing about the corp is that it drastically DECREASES your chances of an audit. The main thing is this: IRS is prevented by law from auditing personal just because they are auditing corp or vice versa unless there is proof of really illegal commingling (that's why keeping clean books is imperative - no personal money into corp or vice versa).

Your personal income is high tier if you're making 400K. You are a prime candidate for an audit. But you would only be a prime candidate if your PERSONAL deductions looked excessive or fishy. Remember, with the corp, you now have a squeaky clean personal income tax return because all your expenses have been taken through the corp. You could basically file your personal tax return on a postcard. And if you are audited - shouldn't be much to argue about since you haven't taken any Schedule C deductions.

As for your corporation - you are a guppy in an ocean of enormous corporations. IRS would be wasting their time on a little corp like you when they could audit, say GM, or Google. You are a low importance target as a corp and thus chances of audit are extremely low. As low as if you were a person making 17K a year in personal income.

You are never safe from an audit. But the corp increases your chances of escaping one, and of emerging unscathed if you do get audited.

that said - an accountant once said to me (after I had overspent) - "when will you writers figure out that after taxes, expenses and commissions you only take home about 40% of your income?" And that is true. But I figure half of my life expenses or more are paid before that 40% hits - including retirement savings and medical bills. So it isn't a bad picture overall.

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Old 06-29-2007, 02:03 PM   #15
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Default Re: Let's say you make 200K on your script...

Wow, talk about valuable 411. Don't kick yourself Qaz, this is actually one of the more informative threads in a while. And big thanx to UncaLeo and Tao for bringing some real "from the horses mouth" takes on it.

Hell, Tao might have a second career in dumbing down tax law for tax-retards like myself if he gets tired of the writing thing, lol. Tax talk is always like translating drunken-Russian to me, but his post was crystal clear.

Good stuff.
"U don' know me, muddafugga..."
- Al Pacino, Carlito's Way
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Old 07-01-2007, 08:45 AM   #16
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Default Re: Let's say you make 200K on your script...

Get rid of the manager, keep the agent (or vice versa), find a lawyer that works for a flat fee or only 5%, hire a pro business manager (who'll also do your taxes) and it's not so bad...

...I hope.
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Old 07-01-2007, 08:50 AM   #17
Tony R
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Default Re: Let's say you make 200K on your script...

And big thanx to UncaLeo and Tao for bringing some real "from the horses mouth" takes on it.
And Goon Squad and BWE, too.
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Old 07-01-2007, 12:16 PM   #18
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Default Re: Let's say you make 200K on your script...

My grandmother always said that "half a loaf is better than none". I know it will hurt at the time, but paying lawyers and taxes will mean that I finally did something right....
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