Every year, I receive thank-you notes from creatives who heard me talk about the value in incorporating, looked into it, did so, and immediately started saving money. Every year, I also hear from folks who lament that they didn’t do it sooner, that they’re not ready to do it yet, that they’re scared, that it can’t POSSIBLY be that easy, that affordable, that good a deal… something.
Okay. Well, all I can do is share my experience as someone who incorporated in July of 2002 and who has been nothing but blissed out with the decision to do so. NOTE: I am not an attorney. I am not a CPA. Hell, I got an 82 in my honors econ class in college (which got me kicked out of the honors program, BTW), and I’m scrappin’ like every other artist I know. Here’s the difference: I pay less in taxes than you do. I write off more of my expenses than you do. More of my money is working for me — in investments and accounts I choose — than is working for the system or my employers (oh, wait, I have none of those). And I am shielded by protections of my corporation against all manner of craziness that might rain down upon me, as a creative collaborator with dozens — if not hundreds — of partners a year.
This is not legal advice. This is not even financial advice. This is the story of how my then-fiancé-and-I, earning $45,000 (combined) per year, incorporated, made our money work for us (since we got to hang onto more of it), and paid $800/yr. in taxes (combined) for our first six years as a California corporation.
Did I get your attention?
If you are getting 1099s, if you’re paying year-end taxes, if you are paying INTO the system via payroll deductions that come in anywhere OVER let’s say $1500 each year, incorporating could save you money, since $800 would be your pay-in for taxes in the State of California as a corporation, Federal taxes don’t exist ’til you’re into profits, and you need to have money to pay your CPA.
Let’s take a look at your favorite actors on IMDb-Pro. Pick like ten of them. How many of them — when you look at their contact tab, and sift out the agents, managers, publicists, attorneys, and such — are officers of their own corporations? More than a few, right? How about your favorite directors? Writers? Producers? These folks may be listed as president of a production company that has no productions produced! That’s okay. 🙂 The point is, they’re running their money through their corporations because it’s the best deal going, tax-wise. And it’s their God-bless-America-given right to do so!
Now, financial advisors will suggest you wait ’til you’re clearing $100K to $250K per year before you consider incorporating. I say, why wait for a day that, frankly — for most artists — may never come, when it’s precisely when you’re below the $50K/yr. mark that saving $2500 to $5000 could make a HUGE difference in your ability to stay in the pursuit another year?
So. How did we incorporate? It happened organically, actually. We had a two-week trip back east ahead of us: My best friend’s wedding and then cleaning out my mom’s basement, after she had passed. I had just been offered a book deal by the BSW parent company’s book publishing arm — totally common among columnists at Backstage back in the day — to turn my existing weekly column into a book. The deal was fair, financially, but a non-starter, in terms of rights. Being the good J-school grad I am, I had negotiated a freelance writing deal to retain my rights after loaning ’em to the company for the low, low price of ten cents per word. If I said yes to the book deal, I’d lose all editorial rights on the content for the book and — far worse — I’d no longer have the right to use the material I had created for the publication.
While flipping through a book during a shift at Backstage just before leaving town on that trip, I noticed a thank-you in the author’s acknowledgements section, stating that without Dan Poynter’s The Self-Publishing Manual, this book never could have existed. “Hmm…” I thought. And then my in-flight reading was purchased. In the 4.5 hours from LAX to TPA, a decision was made: We would self-publish. Ours would be a niche book, which already means it’s a great candidate for self-publishing, and if we could get an international distributor — which we did, thanks to an introduction from our dear friend and author of self-published Acting Is Everything, Judy Kerr — we’d be all set.
But in this book was a lot of talk of incorporating. Eesh. We were sooo not ready for that.
And then, after a week of whirlwind wedding stuff in Tampa and a quick flight up to ATL and then a drive to the north Georgia mountains to clear out my mother’s belongings, it all came together. There was a book on my mother’s bookshelf that made NO SENSE: Inc. Yourself: How To Profit by Setting Up Your Own Corporation by Judith McQuown. And it had her notes scribbled in the margins. She had left this for me. Breadcrumbs down a path toward a business decision that would be executed within weeks. Five hours back from ATL to LAX and another book read, the deal was done. Now: paperwork.
Yes, you can hire someone to do everything for you, but you can also incorporate in the state of California for a few hundred bucks, today. We went with the DIY model and followed every step in Inc. Yourself and the NoLo.com California Quick-Corp Guide. These days, you don’t even need that. You can get your EIN here, file your Fictious Name Statement here, and file everything else here. You can check out the differences between a sole proprietorship, joint venture, LLC, S-Corp, and C-Corp by checking out these docs.
We always recommend the C-Corp, because that’s the big guy. If you think you may grow your business into your wildest dreams, start with that. It costs you no more than the “smaller” corps and it saves you so much more in taxes each year, as well as giving you the best level of protection against pretty much anything that can go wrong, when you’re the officer of a corporation.
I hear a lot of pushback on this: “But! My accountant told me just to form an LLC!” Yeah. Because your accountant — who isn’t versed in C-Corp level tax law — loses your business if you incorporate above his or her abilities. LLC corporate taxes are not that different from personal taxes, in the eyes of a tax preparer or the level of accountant who isn’t certified to do the higher-end biz stuff. Unfortunately, that level of similarity means you’re also not getting a huge tax break, nor are you that protected in that whole world of lawsuit type stuff (yes, the first L in LLC stands for LIMITED, the second, for LIABILITY, but that’s when compared to you as an individual; as a corporation, you’re more protected at the C-Corp or even S-Corp level).
We see a lot of “disposable” companies go the LLC route, because they know they’re only in business for a short amount of time. They’re producing a movie, then disbanding after the movie sells into distribution (amazingly, just in time to show no profits for paying actors or anyone who agreed to “points” on the back-end). BTW, this is how the majority of Hollywood productions get touted as “money losers.” It’s book-cooking. Nothing more.
Oh, and it’s all perfectly legal. 🙂
Since you’re not looking to set up a disposable corporation, but instead hoping to create a way to save more of your money as you grow your creative career, go ahead and head to C-Corp land, even though that means you’ll pay more to get your taxes done each year (no more H&R Block). Believe me, what you’ll save will often be more than worth that choice. And growing into a C-Corp is MUCH easier (and more affordable) than starting out as an LLC and then trying to transition into a C-Corp, where officer loans and repayment of officer loans are a huge part of keeping your money flowing in the right direction each year.
Can you keep a survival job outside of acting while you are the officer of a corporation? Absolutely. Your corporation dictates what its officers can and cannot do, in terms of side jobs. I worked the last of my actor-days survival job ’til February 2007 (and only stopped because the company for which I worked got bought out and we were all let go). We just worked the payroll earnings from that company into our best overall tax burden, each year. Many companies are happy to learn you’re working as a loan-out, as they have less paperwork to do on you if you are NOT an employee. In fact, some artists, this time of year, will incorporate, backdate to January 1st and get a CHECK from their (former) employers for all the taxes that were taken out earlier in the year. (Get to incorporating SOON if you want to do this, as it can take up to six weeks, and we’re getting toward the end of the year, now.)
Will production companies know what to do with me, if I show up to set and say I’m working as a loan-out of my own corporation? You betcha! More people on that set are working as a loan-out of a corporation than those who are working on W4s and I-9s. You just tell ’em you’re a loan-out, they’ll hand you a W9 instead, and you’ll give out your corporation’s EIN, not your Social Security Number, and — huge bonus — when the check comes, it’s got no deductions of FICA, no withholding, no taxes taken out. Nope! YOU, through your corporation, are responsible for paying into the system as you see fit. We choose to put money into interest-bearing accounts, rather than the Social Security system, but that’s just our political leaning.
Every residual check my husband receives for his acting or writing is tax-free. He gets the full amount. Actually, HE doesn’t; our company does. And then our company decides how to pay him, how to pay into the system on his behalf, and then pays taxes on PROFITS as a corporation (not on income as individuals).
Oh, did I mention that you’re expected to lose money as a corporation, your first few years in business, as you get off the ground and as you build toward being able to contribute by hiring other people, as a corporation, years later?
Oh, did I mention that pretty much everything is a write-off, if your company’s bylaws say so?
Yeah, you have to be organized as hell. You have to have a *real* CPA who is ninja about balancing out the overall tax burden as best distributed for your specific situation. You have to be able to pay into the system on a schedule or hold your savings in a very safe place to do a lump payment each year, and that’s not for everyone. But for those who are clicking in on what I’m saying, who are reading everything I’ve linked, today, and asking serious questions of the people who are actually best equipped to answer them (a CPA who deals with C-Corp level corporations, at minimum — not just the tax preparer who would love to see you do the LLC thing), this could be rocking your world in the best possible way.
Good. For those who can’t wrap their brain around this? No big deal. Here’s some Thinkin’ Lincoln savings plan for you, and a little bit about how we went Receipt-Free. Even if you’re not into incorporating, there’s some ninja stuff there for you too! Whenever we teach this in our classes, I hear cries of, “Why doesn’t anyone TEACH this?!?” and the answer is, “Well, someone does. Somewhere. Some private school. Some country club. Some place where very few artists actually dwell, there are folks learning how to keep more of their money using totally legal tactics.” Why not the artists? You’ve just gotta be smart about it all. I welcome your follow-up questions on this, of course.
Have we made mistakes? Sure! Have we learned from them? Absolutely. And is more of our money on our side of the ledger than would have been, had we NOT incorporated in 2002? You betcha. No question.
At least be open to incorporating. Read up on the myths about incorporating. Ask everyone you meet who IS an officer of a corporation what it’s like and how it helps them. Really listen. Think about it. Go pro.
Originally published by Actors Access at http://more.showfax.com/columns/avoice/archives/001578.html. Please support the many wonderful resources provided by the Breakdown Services family. This posting is the author’s personal archive.