BUSINESS AND MARKETING: Business and Marketing Forum Business and Marketing Articles

Tax Issues

COW Forums : Business & Marketing

<< PREVIOUS   •   FAQ   •   VIEW ALL   •   PRINT   •   NEXT >>
Dustin BarronsTax Issues
by on Dec 12, 2005 at 4:52:22 pm

Hello,
I have some questions regarding tax deductions and the independent contractor/employee dilemna. The project is a contracted job in which I, as an unregistered sole proprietor, have been hired by a client to do a 60 minute instructional video.

1. I want to hire out some close-knit friends to work as crew (don't worry, we've been doing independent projects together for years). If I pay them flat rate (ie. $800 for the entire project), are they considered independently contracted or employees. Although technically I own all the equipment (lighting, sound, etc.), it is only for a one project deal.

2. How should I go about registering myself as a business? LLC, sole proprietorship, etc. The problem I have is I am only doing this in between self-produced independent projects. This could only be a one time thing. If I register, what are my obligations to the government if I'm not making quarterly or yearly profits?

3. This project requires much out of town work. How should I go about paying the crew and cast (1 narrator) for their lodging, meals, and travel? I've heard that different business types require different standards. The most professional thing to do, in my mind, would be to cover their lodging, travel, and meal allowance (~$13/day) out of pocket on long trips. For example, pay for their hotel room, their train/plane tickets, and buy their meals. If they had to drive, I would reimburse them the IRS per mile rate for car travel.

How would taxes work on this?
The problem I'm having is this:

I charge, lets say, $20,000 for the project.
However, after meals, lodging, travel, flat rate crew salaries, contracted DVD replicating, etc., I only net $4000.
I simply don't want to be taxed on what I didn't profit on. How can I do this? What documentation do I need to retain on meals, lodging, and travel? How do I file if I don't incorporate? Or if I do?


Return to posts index

debeRe: Tax Issues
by on Dec 12, 2005 at 9:59:44 pm

I'm not a lawyer, nor do I play one on TV.

The independent contractor issue is sticky. Those you hire have to prove they are independent contractors, by advertising, having business cards, letterhead, and a business phone line and all sorts of other things. It's better if they supply their own equipment, but not unheard of for a bona fide freelancer to come in and drive an event companies' gear. The line is murky, and is different almost project by project. You may want to consult a real entertainment attorney.

If you really want to protect yourself, set up an LLC. If it is really a one-gig event, and you're not anticipating any more of them, then you might not need to go through the LLC hoops. If you think this may lead to more, though, it's probably better to sooner rather than later start setting up yourself as an LLC.

As far as paying taxes on what you actually net, you can either require your crew to give you receipts and you will reimburse them. Then you have the receipts for your records and can deduct them accordingly, or you can give them per diem, and what they spend is their business and you just deduct $75 a day per freelancer as per diem, or whatever it is you give them. (I've gotten anywhere from $40 to $90 a day, depending on the location of the event). The less than $13 a day thing only goes so far. It's better if you have all the receipts for all the $3 cups of Starbucks. That way, you're sure to get the maximum deduction you are entitled to, and you don't run the risk of having "too many" undocumented expenses that may make someone raise an eyebrow. You're certainly allowed to deduct tips that you don't get receipts for and such, but if you have too many things that you COULD have receipts for but don't, that can get touchy.

As long as you can show a paper trail of where your expenses are for the event, you shouldn't have to worry about paying tax on money that went to other people or back into the event as an expense.

Just be vigilant about having and maintaining the paper trail, and you shouldn't have too many tax issues.

But talk to a real attorney and a real tax advisor. They can guide you ways that someone who just does it can't.

debe


Return to posts index

debeRe: Tax Issues
by on Dec 12, 2005 at 9:59:47 pm

I'm not a lawyer, nor do I play one on TV.

The independent contractor issue is sticky. Those you hire have to prove they are independent contractors, by advertising, having business cards, letterhead, and a business phone line and all sorts of other things. It's better if they supply their own equipment, but not unheard of for a bona fide freelancer to come in and drive an event companies' gear. The line is murky, and is different almost project by project. You may want to consult a real entertainment attorney.

If you really want to protect yourself, set up an LLC. If it is really a one-gig event, and you're not anticipating any more of them, then you might not need to go through the LLC hoops. If you think this may lead to more, though, it's probably better to sooner rather than later start setting up yourself as an LLC.

As far as paying taxes on what you actually net, you can either require your crew to give you receipts and you will reimburse them. Then you have the receipts for your records and can deduct them accordingly, or you can give them per diem, and what they spend is their business and you just deduct $75 a day per freelancer as per diem, or whatever it is you give them. (I've gotten anywhere from $40 to $90 a day, depending on the location of the event). The less than $13 a day thing only goes so far. It's better if you have all the receipts for all the $3 cups of Starbucks. That way, you're sure to get the maximum deduction you are entitled to, and you don't run the risk of having "too many" undocumented expenses that may make someone raise an eyebrow. You're certainly allowed to deduct tips that you don't get receipts for and such, but if you have too many things that you COULD have receipts for but don't, that can get touchy.

As long as you can show a paper trail of where your expenses are for the event, you shouldn't have to worry about paying tax on money that went to other people or back into the event as an expense.

Just be vigilant about having and maintaining the paper trail, and you shouldn't have too many tax issues.

But talk to a real attorney and a real tax advisor. They can guide you ways that someone who just does it can't.

debe


Return to posts index


debeRe: Tax Issues
by on Dec 12, 2005 at 10:21:16 pm

Sorry about the double post!!


Return to posts index

Dustin BarronsRe: Tax Issues
by on Dec 13, 2005 at 12:16:31 am

debe,
Thank you very much for the info. Extremely helpful. It's nice to know there are still people out there who don't mind teaching us who strive for knowledge. On that note, I do have a few questions however.

First, does anyone know a good way to find entertainment attorneys? I'm in the Detroit area and I know they're out here, but where at I'm not sure. What is the going rate for consultation of that type? And, does anyone have experience at finding alternative routes to getting questions answered by professionals (university professors, mentors, etc.)?

Second, what is involved with a LLC? As a general business question, do you have to be a partnership, or can I do it as an individual? (I don't know how trusting I am of a partner at this point in my "career") How much paperwork and how often do you need to file with the government? Are there annual or quarterly costs?

Lastly, does anyone know how you can find production insurance? As with attornies, I'm yet to find any insurance companies. Any recommendations on actual companies would be greatly appreciated.

Any help would, again, be greatly appreciated.

Thank you again,
Dustin



Return to posts index

debeRe: Tax Issues
by on Dec 13, 2005 at 1:44:54 am

Well...for attorneys and accountants, I usually go with referrals. Does anyone else in your area do the same things you do, and are you on good enough terms with them to ask for a referral? A huge competitor probably won't be willing to share, but someone working in the same vein may.

Otherwise, is there a local production guide? Often attorneys advertise in there.

You could try calling the small business or entrepreneurial business department at a college or university nearby. They might be willing to give you direction, but few will probably be willing to give actual legal advice. If they're not a lawyer, they won't want to give legal advice.

There may be a Small Business Administration near you. You could look that up in the yellow pages. I think that's a national group. Google might not be a bad place to look.

Another place to call may be your local Chamber of Commerce or Rotary Club. They may want you to join, but it very well may be worth it!

As for costs, I can't really help you there. I know there are filing fees, but I don't know how much, and I don't know if you have to "re-up" every year. Getting an appointment with an SBA representative may be the best place to start, actually. I'm a sole proprietor. I looked into starting an LLC a few years ago, and it wasn't right for what I do. I have faint memories of all that stuff, but nothing I'd want to try to explain, 'cos I don't think I'd do very well.

For insurance, I'd start with whomever handles your homeowners. Get a quote on their small business liability insurance so you have a reference point. The SBA may be able to give you guidance on finding insurance companies that may specialize in production insurance. I always try to get 2 or 3 quotes, you wouldn't believe the difference in premiums and services for things that are essentially called the same thing.

Sorry I can't be of more help. I will tell you that if you go forward, if you aren't already doing so, be SURE to pay your quarterly estimated taxes on time. Nothing gets you scrutinized faster than late estimated taxes and an April 15th payment or refund greater than 10% of your total tax. You also get charged a penalty for not paying quarterly, unless you over-pay one quarter or have a bust of a quarter and you hardly make anything.

But don't over-pay! It's your money, keep it in the bank!

debe



Return to posts index


nestorlRe: Tax Issues
by on Dec 13, 2005 at 8:27:17 pm

Hello Dustin, let me just reiterate some of what Debe explained.

1. Although some treat crews as independent contractors (IC), under most conditions they will be your employees. The IRS use specific tests to determine the status of these type of workers, and production crews usually fail this test. In particular, crews are not independent contractors if you are in charge of what they do. That is, if you direct and provide instructions, then they are not IC (you can provide specifications, but not direction). The other test is a test of 'essential functions'. That is, do the service provided by the IC is essentially the service provided by the company? For example, are you a law office that calls its lawyers IC? That would be a NO NO. In our case, if the IRS comes after you then you would have to say that the work of your IC is no essential to the work you offer. This may or not may be true depending on the crew type. For example, if you are a videographer and offer services to videotape a wedding, then it would be difficult to make an argument that the camera man is not an essential component of your services and therefore could be called an IC. There are many other rules usually known as the Common Law Factors (IC have their own tools, own hours, etc). Google it and you will be able to read about it.

But in conclusion, you will be saved treating your crew as employees unless they are incorporated and you are therefore hiring the services of the company and not the individual members.

2. Yes, you should register your company as an LLC. You can and should use the LLC even for your self produced projects since it will provide you with some liability protection. Filing requirements will change by state, but LLCs have minimal filing requirements. Most LLCs are registered in Delaware (you should consider this too). If you register your company as a Delaware LLC you will pay a yearly flat tax fee of $200 (plus federal and your own state's). There are no other filing requirements after the initial registration (no board meetings, no shareholder meeting minutes, etc). Regarding tax, this will also depend on your state, but you will file federal and state taxes even when you have losses. The LLC uses pass through taxation, which means that the LLC does not pay taxes: you do. But when the LLC has losses, the losses also pass to you, which may be a benefit. Taxation of LLC is complex since you will be paying self-employed taxes, etc, so an accountant should be used.

3. You do not get taxed on Revenues (the 20K you charged). You only get taxed on profits (the 4K). You need to keep clear records of your business expenses (including all invoices and receipts), which your accountant will use to calculate your yearly tax. Consider investing $200 on Quickbooks pro. It is extremely easy to use and will keep your business numbers clean.

If you choose to incorporate in Delaware, I can recommend someone for you. We have incorporated a couple of companies in DE and have gone through the process several times.

Cheers, Nestor.


---------------------------

Nestor L. Lopez

Executive Vice-President

Explorart Films

http://www.explorart.com




------

Statements presented in the message are statements of opinion only and should not be considered legal advice. Please contact a qualified entertainment attorney.


Return to posts index

Dustin BarronsRe: Tax Issues
by on Dec 14, 2005 at 12:03:03 am

Nestor and debe,
First of all, thank you for the information. Secondly, a couple of questions if I may:

In my situation, certain crew will definetely be employees according to the help I've gotten from you wonderful folks. However, I'm a little confused about certain things. First, can I pay these employees a one-time payment or does it have to be weekly or bi-weekly, etc? Second, do I have to pay per hour? The thing is that these employees are all close friends who have absolutely no problems with being paid a one-time $800 rate at the end of the project. However, this low number may even conflict with federal min. wage regulations. I am stuck in a bad position of already sending an estimated budget to the client before I was aware of alot of this new info. What position does this leave me in? Also, would I need to terminate employment with them and rehire them at the start of a new project (if there are any) or would they be on hiatus? The thing that gets me is the fact that they are only working for a very specific amount of time (4-5 weekend shoots).

Second, with employees, do I need certain insurances beside a regular production insurance? For example, workers comp. If I did need workers comp. or anything similiar, could I wait until I recieved my up front payment from the client to purchase it? And, could I terminate the insurance once this project's done? What is the going rate for policies?

Lastly, if I become an LLC (thank you so much for the help on LLC's everyone), can I remain as a home business?

Anything would be extremely appreciated. I'm still young and looking for any knowledge I can get. Thank you again.

Thank you,
Dustin



Return to posts index

debeRe: Tax Issues
by on Dec 14, 2005 at 1:38:26 am

I just wanted to let you know that I can't add any more. Your questions have surpassed my very basic understanding.

Sorry to squander the bandwidth, but I didn't want to leave you hangin' hoping for more info from me....

debe



Return to posts index


nestorlRe: Tax Issues
by on Dec 14, 2005 at 2:25:10 am

Hello Dustin, you should really make an appointment with an accountant and discuss this, since some of it will depend on your State. But here are some general thoughts on your questions:

>>> First, can I pay these employees a one-time payment or does it have to be weekly or bi-weekly, etc?

Yes. You can pay them anyway you want to. Not necessarily by the hour.

>>> Second, do I have to pay per hour?

No, I believe you can pay them by the project (salary).

>> Also, would I need to terminate employment with them and rehire them at the start of a new project (if there are any) or would they be on hiatus?

You do not need to terminate the employment. You simply do not include them in payroll for the months they do not work for you.

>>>Second, with employees, do I need certain insurances beside a regular production insurance? For example, workers comp.

Worker


Return to posts index

<< PREVIOUS   •   VIEW ALL   •   PRINT   •   NEXT >>
© 2017 CreativeCOW.net All Rights Reserved
[TOP]