Getting your Buisness Organized

[wreck]

I have not seen much of this on the forum...
How do most of you run you're buisness? Have you formed an LLC or INC.? Do you take out heavy loans to buy gear? Do you work wonders with taxes? I find myself struggling to make ends meet and buy the gear i really want. Any info on how you got up to you're massive slut status would be great..

[CorkyTart]

Have you formed an LLC or INC.?

Formed an Inc and got taxed till there was nothing left. Now I'm a sole prop.

Do you take out heavy loans to buy gear?

**** no. Not anymore. I did and it took FOREVER for the money to recoup since there is always something breaking or new to buy. Let the new gear earn itself.

Do you work wonders with taxes?

Save every receipt and get a good CPA. You don't want to work too many wonders cause the IRS will flag you. Just be honest and you'll be fine.

I find myself struggling to make ends meet and buy the gear i really want. Any info on how you got up to you're massive slut status would be great

Let the business grow. I've seen people go out and buy 25-50k in gear and never make money. What you want and what you really need to make money are two different things. The other advice is to have a day job until you absolutely can not have one. You'll always pay the bills that way and not do the broke musician crap.

[joaquin]

Originally Posted by CorkyTart

Have you formed an LLC or INC.?

Formed an Inc and got taxed till there was nothing left. Now I'm a sole prop.

...isn't there some form of Tax Break or help for small business?

[T-rex]

I am getting ready to go the LLC route soon. I did the band thing years ago and the LLC was the way to go. We had a CPA (whom I still use) and the tax write offs in my experience were amazing.

[ringo.fire]

I would stay far away from loans with the exception you run a good booked studio.
make an easy businessplan and build your studio slowly
I started with a 100% plan : everything I earned in the studio was invested in gear.
money came from gigs.
Now I am on 50%. at least I try to follow this rule to be not to slutty...

good luck thumbsup

[audioez]

my golden rule of audio gear purchashing is this.... Do invest in gear that will appreciate in value, just in case one day your dreams of being bruce dickenson don't pan out, no pun intended.

http://www.ezraudio.com

[AdAudioInc]

I operate as an "S" Corp. For payroll taxes this basically means I pay double. When you work for some one they match the taxes that you see withheld on your paystub - when that someone is you, you pay twice - once for you (employee) once for you (employer). Above a certain amount of income this makes sense, because there are tax breaks that off set it - again, you need a good CPA.

Good luck

[HudHudson]

Originally Posted by joaquin

...isn't there some form of Tax Break or help for small business?

Any business, including a sole proprietorship, may expense up to $102,000 worth of capital purchases (like gear) instead of having to depreciate those assets over 5-7 years. So if you make $25,000 and buy $25,000 worth of gear, you pay no federal income taxes on your income.

[kennyd03]

Some good advice I received from my accountant (if you are in the U.S.): Really make a plan to have your business be profitable in three years, otherwise the I.R.S. will be more likely to come looking - especially if you list "Entertainment" as your occupation. They like to bust people who are listing their "hobbies" as a business.

Out of curiousity, has anyone here had any experience with the I.R.S. as a studio owner/music person?

-KD03

[HudHudson]

Originally Posted by kennyd03

Some good advice I received from my accountant (if you are in the U.S.): Really make a plan to have your business be profitable in three years, otherwise the I.R.S. will be more likely to come looking - especially if you list "Entertainment" as your occupation. They like to bust people who are listing their "hobbies" as a business.

Out of curiousity, has anyone here had any experience with the I.R.S. as a studio owner/music person?

-KD03

From personal experience, the IRS doesn't have the resources to hunt down hobbyists who write off their related expenses and purchases. As long as you operate your business with the intention of making a profit there's little they can or will do. They are certainly interested in cases of true fraud (illegal tax shelters, etc.) but I don't think the typical case of an aspiring artist/"studio" owner taking fair advantage of tax breaks for small businesses will get their attention.

[David R.]

Sole Prop. here. Seperate bank account for the studio, also business card. I treat the business card like a check - if I do not have enough $ to buy what I want in the business account, then I don't buy it.

My studio is in my home, so I get to write off a portion of rent (now mortgage) because the sole use for the room is business. You don't need a CPA, but a knowledgeable accountant is a great investment.

I have also heard less red flags to the IRS if taxes are filed by a professional.

[joaquin]

Originally Posted by HudHudson

Any business, including a sole proprietorship, may expense up to $102,000 worth of capital purchases (like gear) instead of having to depreciate those assets over 5-7 years. So if you make $25,000 and buy $25,000 worth of gear, you pay no federal income taxes on your income.

thanks HudHudson. there would be too many questions since my ignorance in the matter is abundant. I'll try to ask around about yor statement. my last declaration did not work like that even though I had my trusty accountant managing the situation

[chuckj]

I operate my place as a sole proprietor. It's very easy to set up. File a "dba" (doing business as" in your local community. This is usually sufficient for a bank to set you up with a business account. With business and personal expenses, keep EVERYTHING separate from this point. Have a separate bank account, biz credit card, etc. Keep every receipt. Deduct everything you can legally deduct. Took a drive to the mall to pick up a CD for the studio? The mileage and the CD are tax deductible.
I have commercial space that I am leasing and am properly zoned. Be careful with a home studio and deducting part of your mortgage from your taxes. Most communities are a don't ask don't tell scenario when it comes to running a commercial enterprise from your house. But if there is an issue that arises it will be difficult to deny that you were not operating a business if you have deducted your living space from your taxes. One of the disadvantages of a sole prop is that you have some increased liability. You are personally liable for the business. A hefty insurance policy goes a long way toward mitigating that. If you incorporate then you have a "shield" from certain liabilities. A good attorney can properly explain the differences. Sole prop, LLC or S corp all have deductions for equipment purchases. With a sole prop you are taxed through your personal income rate. So if you have another job, then the studio income is taxed at the rate of your personal income. If you make enough to get bumped up to a higher tax bracket, then you'll have the good fortune of owing Uncle Sam more money. One of the advantages of incorporating is that you can pay yourself a salary. The salary needs to be deemed "reasonable". The salary then becomes a business expense and is deductible. You still get the double taxation hit from having to pay FICA (social security) as an employee and an employer but you can still come out ahead. A good accountant is your best resource. My accountant ran a comparison scenario for me and the difference was not worth the time and expense of incorporating, ymmv.
I have never taken out a loan for any gear. If I couldn't afford it. I didn't buy it. I still operate that way. But I am naturally a more risk averse person when it comes to financial matters. If you talk to others, then spending "OPM" (other people's money) is the way to go. Just try to be as certain as possible that the business is there to support the extra expense. And with the studio business that's easy to predict, right?
My bottom line is pay the bills first....gear second. Sure I don't get to completely satisfy my gearslut cravings because of that pesky mortgage and having the need to eat on a regular basis but I'm perfectly fine with that tradeoff with the purchase of an occasional Daking or Hardy pre every once in awhile.

[Audy O]

Some really great responses here.

Definitely consult a CPA to do your taxes and for planning. A Tax Attorney can help you with planning and set up the entity you need whether Sub Chapter S, LLC, Corp., Limited partnership etc. Each state has different laws so use a someone locally.

Hawaii for instance has a "Hi Tech Tax Credit" which waives State Tax to companies deemed "Hi Tech" such as those using computers to manufacture their products or produce services. Most modern recording and video studios qualify.

Also, keeping your business and personal checking separate is a must in case of an audit with the IRS.

Very Important: Maintain excellent credit and establish a good relationship with a banker. Folks with good credit pay less on loans and can get higher borrowing limits. A banker can also help you establish a "Line of Credit" for you to use as needed for inventory, supplies, when a "super, once in a lifetime, must have" deal comes along. Interest rates are near historic all-time lows and interest is deductible for taxes so it's a good time to use some leverage IF you need the gear.

One good rule of thumb is to finance long term assets with long term financing, and short term assets with short term financing. For instance, buying a mic or recording console which you intend to keep for a long time should be financed with long term debt. Supplies, blank DVDs, inventory which you'll sell right away should be paid for with short term debt.

Also, keep a wary eye out both long and short term for industry trends and equipment obsolesence.

Be prompt, business like (but cordial), punctual, reliable with your clients, associates and with other professionals like CPAs, bankers, attorneys and expect to be treated the same way. In other words, be a true "professional."

Best regards to all,
Audy O