Every business-savvy creative in the film, entertainment, or music industry should stop what you're doing and read this article. I am about to share the best-kept secret in Hollywood. Hello! It's me again, Carter Cofield, your favorite tax advisor, sharing the latest advice to help you with your taxes and money.
Successful creators--that's entertainers, actors, models, and more, use a loan-out corporation to mitigate taxes, protect themselves from lawsuits, and to boost their net worth.
In this article, I'll explain what a loan-out corporation is, why you need it, and how to set one up. Take notes, and then make sure to contact me for the next steps. Remember, I am here to help you maximize your income and minimize your taxes.
What is a Loan-Out Corporation?
Actors, musicians, freelancers, and creatives like you establish loan-out corporations or a loan-out company to protect their assets and enjoy certain tax benefits. When you have a loan-out corporation, you are an "employee" of the corporation. While you work for your corporation, your corporation works for you.
Let's say you are an actor in Hollywood, and you want to be in films, commercials, and the next hit sitcom. Your loan-out corporation would be the legal entity that signs contracts with businesses, such as production companies filming your upcoming projects. When it comes time to shoot, your loan-out company would "loan out" you to the production company.
When you establish a loan-out company, you are the all-powerful owner and sole employee of the corporation at the same time.
How Does a Loan-Out Company Work?
Like most companies, your loan-out corporation gets paid based on the terms of the contracts signed. In my actor example, production companies sign deals with your loan-out company. Then because your corporation signed the contract agreements, the production companies pay your corporation, not you.
Guess what happens next?! Your company pays you, the entertainer, a salary for the services performed. Also, the loan-out corporation provides services to you, such as accounting and legal support, coaching, and covers some of your expenses like agency fees.
Now here’s the real kicker, once you do this a majority of your personal expenses become tax-deductible! That’s right! Expenses like Ubers, tv subscriptions, and WGA dues, become tax-deductible. In fact, almost all of the business expenses incurred by the corporation's employee (you) are deductible.
Lastly, a loan-out corporation is excellent for protecting your assets, especially if you are wealthy. As a celebrity, you may be a target for frivolous lawsuits and claims. However, because loan-out corporations are separate legal entities (separate from you), your wealth is protected from any liability connected to the corporation.
In summary, for a creative, a loan-out corporation is the legal middleman to help you protect and make your fortune.
Who Needs a Loan-Out Corporation?
You were born to act, write, sing, dance, or create. Whatever your specific talent, if you want to make it in your industry and save yourself money on taxes too, you could benefit from a loan-out corporation at some point. I recommend holding off to set up your loan-out corporation until you have at least $75,000 of annual income.
In general, the more you make, the less you want, Uncle Sam to take. A loan-out corporation is perfect for higher-income earners. Under a loan-out corporation, you, as an individual, get to avoid the high costs of traditionally self-employed entrepreneurs.
Perks of a Loan-Out Corporation
Lower Taxes
One of the best benefits of a loan-out corporation is access to tax savings. Depending on your income level a loan-out company can easily save you anywhere from $20k - $100k in tax savings per year! What could you do with an extra $100,000 in your pocket?
If you are a higher income earner, a loan-out corporation can benefit you. However, remember your corporation's income should be at least $75,000 to see the real savings.
Flexible Fiscal Year
When you establish a loan-out company, your company is no longer bound to a January to December fiscal year. Corporations have the luxury of being taxed on an annual basis. As the owner of the corporation, you can determine your twelve-month cycle.
For example, your fiscal year could be July 1-June 30. But since you are the owner, you could set your fiscal year based on your birthday, career anniversary date, or whatever you like. However, I recommend you start your fiscal year just before your busiest, higher-income time of year.
If you are smart (and with my help), you'll select a fiscal year that could have significant tax savings in its first year. I can help you defer a sizable portion of your loan-out corporation's taxable income to the next fiscal year.
The fiscal year flexibility also allows you to spread out your income in a way that works best for your finances. For example, your corporation could get paid from different contracts throughout the year. However, you could set up biweekly salary payments to provide yourself more stability.
More Tax Deductible Expenses
Tax laws can be complicated, but in short, corporations can write off way more expenses than individuals. When you operate under a loan-out corporation, the corporation can deduct all your expenses by treating them as corporate expenses. Don’t forget, corporations can deduct items that individuals cannot claim on their tax return.
With the right strategy and organization, the owner of a loan-out company can drastically minimize their taxable income. Translation: your write-offs have a more significant impact on your take-home income. For example, as an actor, you are limited in how much you can write off for medical expenses. But your corporation can write off all medical expenses as an employee benefit and offset taxes paid.
Protect Your Assets aka CYA
I mentioned this before, but let me repeat it, a loan-out corporation protects your assets. Period!
Remember, a loan-out company is a separate legal entity from you. Therefore, you are not legally responsible for any claims against the company. So, if your company is sued, the company's assets could be at stake, but not not the assets you personally own. Plus, if someone sues you, they can come after your assets, but can't touch or have access to anything your company owns.
So the key lesson here is compartmentalization. A loan-out corporation helps you keep your assets and your company assets separate from each other and from external threats with frivolous lawsuits.
How to Set Up a Loan-Out Corporation
I can help you set up a loan-out corporation correctly and instruct you on the proper uses of the business entity. The effective use of a loan-out corporation is what makes someone a business-savvy creative, not the sheer set-up. So please hire someone that will set this up for you AND walk you through the proper steps of how to use it.
However, this tax shelter strategy can be complicated, and you should work with a morally grounded tax pro--like me--if you want to get one set up.
So, there you have it, folks. If you are on your way to earning your highest revenue yet, it’s bound to go up from here. Why not protect yourself with a business entity that gives you more tax benefits, financial stability, and a coat of financial armor against lawsuits? Let’s chat more to see if a loan-out corporation is best for your business.