are you a corporation?

[viaspiaggia]

i guess this would be mostly for those state-side, as i don't know what the legal / tax issues are outside of the usa...

i am moving from being on staff to being a freelancer, and i'm not sure how careful i need to be with tracking my income and expenses, etc. i am anal when it comes to tracking our monthly budget (food, car, utilities, etc) so i know i will do fine tracking things for my own sake, but i don't know if come tax-time i will end up screwed.

if i have a small setup at home that will be used for editing, and otherwise go work for cash / 1099 for people in their studios, do i need to go to the legal trouble of incorporating? is it that much trouble? as long as i keep receipts and its legitimate, i can easily deduct business expenses from my taxes, right? like dsl service, equipment purchases, marketing costs...

any tips from those in the know greatly appreciated.

-adam-

[doug_hti]

no, in most states, i wouldn't bother incorporating until your annual gross gets up around $500k+ a year. If you do incorporate, then go for a S type, but they (the gov) are cracking down in most states on the flexibility and ease of those, so that's not even worth necessarily. But really as a freelance of what you are doing, I honestly imagine the liability is relatively low. Just get some insurance for certain things.
As far as expenses and writeoffs...I STRONGLY suggest you hand over your stuff to an accountant, specifically one who specializes in music entertainment or just entertainment. They know the tricks of the day and the writeoffs that will and won't attract attention. Also the fact that your taxes are handed in by an accountant usually discourages auditers. Some accountants actually give a guarantee to cover expenses for an audit if you get the visit.
I don't do my taxes, but I think my accountants are careful with how much "square footage" they write off within our home. Be careful about "business trips". But equipment expenses are easy. Computer based stuff gives you a huge break in how fast you can depreciate it, etc.
Just pay your quarterly taxes and estimate them properly, and you'll be fine.

[viaspiaggia]

Originally posted by doug_hti
Just pay your quarterly taxes and estimate them properly, and you'll be fine.

thanks for the info doug! i will look into getting an accountant. one question - do i need to pay quarterly taxes as you mention above, or can i just save the money on my own and pay them annually?

i have lots of research to do which i will start right away!

thanks!

-a-

[doug_hti]

Originally posted by viaspiaggia
one question - do i need to pay quarterly taxes as you mention above, or can i just save the money on my own and pay them annually?

-a-

I'm not sure what the actual tax law is. However, i believe you ARE supposed to pay quarterly based soley on estimation, I think from the previous year, and there is a penalty if you undershoot those quarterly estimations too much when you get to your final annual tax fees. I don't think you'll get in trouble necessarily if you don't pay the quartery fees, you'll just probably have to pay more penalty. I'm sorry I don't know specifically, as I don't handle most of my finances directly. Hopefully someone will chime in.

And if you are hiring people (players, etc.), just make sure you have them fill out the appropriate 1099 (I think) forms. I believe you only need it from them though if you are paying them more than $2k a year.

[viaspiaggia]

there may be more trouble in this than i realized! i assumed that i would work freelance at various studios, recieve cash or checks with associated 1099s, report all that as income on my 1040, report a bunch of business-related expenses along with the usual deductions, and be on my merry way! but anything i find online regarding freelance work makes it seem like i need to file as a small business?

do i need to file as a small business if this is all i am doing? again, i will have a small (tiny) setup at home just to do editorial stuff, but i would still be paid by a given producer to do the work... not really opening a studio as a business, just self-employed.

any advice appreciated! also feel free to point me to other posts or links online i may have missed.

-a-

[Fleaman]

Originally posted by viaspiaggia


there may be more trouble in this than i realized! i assumed that i would work freelance at various studios, recieve cash or checks with associated 1099s, report all that as income on my 1040, report a bunch of business-related expenses along with the usual deductions, and be on my merry way! but anything i find online regarding freelance work makes it seem like i need to file as a small business?

do i need to file as a small business if this is all i am doing? again, i will have a small (tiny) setup at home just to do editorial stuff, but i would still be paid by a given producer to do the work... not really opening a studio as a business, just self-employed.

any advice appreciated! also feel free to point me to other posts or links online i may have missed.

-a-

You will probably have to start a dba and file all your expenses under a schedule 'C'. Essentially you and your 'business' are one in the same as a 'dba', so even if you had a part time job at the gas station, that income along with your freelance work all gets added together on the same income.

Don't forget that as a freelancer you will have to pay what most call the 'self employment tax'. This is the S.S. tax which is 15%, but when you work for someone else (NOT 1099) they (the employer) pays 1/2 of this...so 7.5% and you only pay the other 1/2 (7.5%). If you work for yourself, you have to pay all of that 15% up to a maximum $$ amount a year (I forget what it is).

The dba rules and state tax laws vary from state to state.

Also, schedule 'C's seem to attract a lot of attention from the IRS.

And, I'm not an accountant or even a good businessman, so I'm waiting for someone to correct me on any errors I've made above

Fleaman

[Dave Martin]

Non-salaried people need to send quarterly payments whether or not they're a Sub S corporation. ou can skate the first year, and then send in quarterly esptimates based on the prior year tax return; tehy don't penalize you if you underpay by that method.

Having said that, there are advantages to a Sub S; some things that you can't write off aws a sole proprietorship can be written off as a corporation.

Have your accountant look at it for you to see whether the advantages are outweighed by the added paperwork.

[viaspiaggia]

thanks a million everyone!!!

so now the natural question is to get a recommendation for an accountant. i am in downtown chicago, and would love someone that is inexpensive (of course), entertainment-minded if it matters, but someone that also has a handle on other small business stuff (my wife is starting up a catering business - this will be a busy year!!! )

any recommendations for an accountant appreciated.

and keep the advice coming, too! you slutz are the best!

-a-

[doug_hti]

yeah, about the s-corp, my wife and I's business manager said they have started to make s corps less and less attractive (cause they were relatively new). however, like dave said you get some advantages of corp, yet you can run most of the business like a sole proprietor and not have to report board meeting "minutes" etc. You could probably have an attorney set one up for about $2500 or less.
As a sole proprietor you DO NOT need a d/b/a, as stated, it is yourself. However, you may be interested in filing for a tax id number, in which you may need to file for a d/b/a, even if it is yourself. If you are freelancing a lot of places and some of those shady and some not, I like the idea of not giving out a social security number. Honestly, it's not hard, it's just a half day down at the courthouse or wherever it is. If you officially file the d/b/a, you'll have to check for clearance of the name and then publish your intention for "joe blow" to start the business and publish it in a newspaper.

Accountant wise, I don't know who our business management uses in Nashville, but I suggest finding some sort of entertainment accountant in Illinois, because, as stated, many laws are state dependent.
You will be suprised how cheap it is in finding a good one, so don't go fishing for the bottom of the barrell, or you will be sorry. The better you get, the more money it may cost up front, but you will save lots and also be safe. And it's not worth it trying to get a schmuck that wants to fudge numbers a little here and there, and impress you with your return. Cause when the IRS comes running to you, he won't be found.

Just call up local studios and ask them, or call up a theatre company?!

[3rdpath]

you do not have to file as a small business. what you are is a sole proprietor. if you want to have a company name you can file a dba( which most newspapers will do for you for around $80.00). this will allow you to open a bank account under your company name...but you don't even have to do that. i would keep everything as simple as possible because you're just starting out...who knows if you'll even like being freelance.

you can't prepay your taxes your first year because you have no idea what your income will be. i'd set aside 25% of your income so you'll have enough to pay the lump sum that will be due for your first year. your quarterly payments will be based upon your first year's income...so be prepared to pay that also( you 1st prepayment is due 4/15 just like your taxes which can be a bit of a financial surprise...)

get a good cpa...mine happens to be a sole prop. too so she knows all the issues. there have been some very favorable changes regarding home office deductions too. since you're meticulous about your finances that will help a lot...keep every receipt, keep track of business miles, phone calls..it all adds up and you can run a large portion of your expenses thru your "business".

overall, it's pretty easy to do..i've been freelance for over a decade( and have survived a grueling audit covering two tax years...didn't owe them 1 cent!).

one final word...be mindful of your city's business laws such as licenses and fees. los angeles is now using federal tax records to find every single sole prop. in the city. other cities will no doubt follow suit as their budget woes worsen.

[Fleaman]

doug and 3rdpath...and anyone else in Los Angeles:

Could you recommend any accountants in the L.A. area that are reasonable and have music/studio numbers experience?

I will need one in the near future, but need to start small....

Thanks,

Fleaman

[Neddy Seagoon]

There is a 10% penalty for not paying quarterly taxes, irrespective of whether it's your first or 20th year. Either way you know (or should know) what you grossed in the previous 3 months.

A good accountant should tell what is worth deducting and what isn't. Sometimes preparing an additional schedule will cost more than you get back - plus you have the "Red Flag" issue. Always check with them before making a major purchase, don't just assume you will write it off and get that big 25% discount. It's not always that simple.

[Mark]

Neddy Seagoon?


You're a British ex pat?

Sorry to drag this off topic. We will now return you to your normal scheduled programming.

[doug_hti]

Originally posted by Fleaman
doug and 3rdpath...and anyone else in Los Angeles:

Could you recommend any accountants in the L.A. area that are reasonable and have music/studio numbers experience?

I will need one in the near future, but need to start small....

Thanks,

Fleaman

Our accountants and bus. mgmt. are in Nashville, even though I live and file in California, but I'll find out from one of my friends the name and number of his guy out here, which is really good, but may be too expensive or not worthwhile if you are not grossing that much. I'll post it tonight or tommorrow.

[Neddy Seagoon]

Originally posted by Mark
Neddy Seagoon?


You're a British ex pat?

Sorry to drag this off topic. We will now return you to your normal scheduled programming.

Yes I am, though I've lived here for nearly 25 years so I'm pretty "Americanized" though I occasionally revert to my former English self when a) surrounded by other English types or b) when a young lady tells me she likes my accent.

[e-cue]

Originally posted by Fleaman
doug and 3rdpath...and anyone else in Los Angeles:

Could you recommend any accountants in the L.A. area that are reasonable and have music/studio numbers experience?

I will need one in the near future, but need to start small....

Thanks,

Fleaman

H.N.R. Clark (Keith Clark) 818-848-5858

He kicks ass and specializes in the entertainment field. Actually, he used to play guitar for the Circle Jerks.

[Kris]

What!?!? I wish I lived in LA just so I could have the ex-Circle Jerks guitar payer be my accountant! I practically broke my back at a show of theirs many moons ago...

[Jay Kahrs]

There are a few other advantages to setting up a corperation or an LLC. For starters, all your gear can be owned by you and loaned to the company. In the event of bankruptcy or someone suing you they can't take the equipment because it's owned by an employee who only works for the company. Also, if you ever lease or rent a commercial space you'll be better protected then if you personally sign the lease. I learned that lesson a few years ago when the first space I leased for the studio went south. I lost some money on the deal but I came out of it in pretty good shape. Cover your ass 101 at work.

I keep track of the monthly expenses on a few Excel spreedsheets. At the end of the year I print them off and turn them over to my accountant who makes sense out of them. I have one sheet for all the expenses like repairs, lightbulbs, supplys, etc. and another that covers all the phone bills, electric, rent and whatever. You can also keep track of your mileage and deduct that as a traveling expense. But, if you do that then you need to report the income from that gig. When I freelance I don't get a 1099 so it's up to me to keep track and report what comes in that way.