The Tax Cuts & Jobs Act Tax Reforms Have Upended Who Stands to Benefit by Using a Loan Out Corporation
As a performer or related professional in the entertainment industry- movies, music, television, theater, etc.- it’s standard practice to be contracted on a project as a W2 employee. Adopting this default W2 employee classification for contracted roles was a defensive response by the industry to repeat attacks brought by the IRS and state tax authorities that scrutinized worker classification practices. By classifying contracted roles as W2 employees, the industry was able to successfully avert the unwelcomed spotlight of the tax authorities, but in doing so, limited the ability of its contractors to fully recoup business expenses, maximize tax savings, or elect a preferential tax status.
For the most part, performers and related professionals willing comply with this industry norm, except for those who regularly making their living in entertainment, and are better advised to hire out their services through a wholly-owned Loan Out Corporation instead. By providing your services through a Loan Out Corporation, you are able to deduct 100% of eligible business expenses, defer more of your earnings, and participate in certain tax savings opportunities that are not available to W2 employee classified contractors.
If you are paying commissions and fees to managers or agents; own your own production equipment; pay for travel, union dues, or professional services, etc.- you know these expenses add up fast! For some, unreimbursed expenses can total as much as 40% of their gross W2 wages. Under new tax reforms, known as the Tax Cuts & Jobs Act, employees can no longer deduct any business expenses as of 2018, which has hit the entertainment industry particularly hard.
The exclusion of these deductions results in more taxable income, and a higher overall tax bill, catching many by surprise when they filed their 2018 tax returns. Not surprisingly, this has reignited interest- and unfortunately the spread of misinformation- about Loan Out Corporations. What are they? How do they work? How do I get paid? Will I still be eligible for unemployment benefits between projects?
To answer these and other common questions about how to properly set up and operate a Loan Out Corporation, please fill out the form below to receive my FREE guide: 5 Essential Hacks for a Successful Loan Out Corporation.