DOES IT MAKE SENSE TO CREATE A “LOAN-OUT COMPANY” UNDER THE NEW TAX LAW IF YOU WORK IN ENTERTAINMENT

There is a lot of talk about the advantage of starting a “loan-out company” under the new tax law if you are an entertainment independent contractor. A “loan-out company” is a corporation (S-Corp, C-Corp or LLC) created whereby you would be an employee of the new corporation rather than being hired directly by a third party. This would allow an individual to pass through expenses the company may deduct that are possibly no longer deductible by individuals under the new plan. In a business where considerable expense goes to pay for agent/manager commissions, costs related to searching for the next gig, or equipment, it is certainly something that needs to be considered. However, all is not so clear cut. Setting up a new company has its own disadvantages including needing to keep personal books as well as books for the new company. There are also incremental fees and filings (such as registering as a foreign agent in states other than the one the company is registered in) related to corporations in addition, many productions will not hire a loan-out company and require the individual be put on payroll.

However, there are also distinct advantages available only to corporations. And with the corporate tax rate going from 35% to 21%, someone earning over $100,000 is probably saving enough to offset incremental costs or the double taxation issue corporations face. These advantages include tax breaks available to corporations and LLCs such as medical reimbursements and other employee benefits not available to self-employed individuals. Corporations also offer asset protection. Any money the entertainer earns through the loan-out as an owner/employee belongs to the loan-out; only the property the entertainer possesses, as an individual separate from the loan-out, is accessible to creditors.

The best thing for one to do is discuss with their tax specialist or production financial services company to see what is the best way to prepare themselves for 2018.