Actors, recording artists, and other individuals paid large amounts of money need to find legal ways to protect themselves and their wealth. A loan-out company is formed as a separate legal entity for a recording artist, actor, or individual who receives high pay. Celebrity loan out corporations have become increasingly popular for good reason.
The individual who sets up the loan-out company becomes an employee of their corporation. The corporation will loan out the services of the individual who sets up the company. For example, a recording artist’s loan-out company may loan their services out for performance.
Learning How to Run a Loan Out Company Successfully
Using a loan-out company can save a production company and the actor or recording artist a lot of money, especially on individual and payroll taxes. A production company will make the check payable to the loan-out company instead of the actor or crewmember. Since the actor is an employee, the loan-out company pays payroll taxes, saving the actor or recording star a ton of money.
What Is a Loan Out Corporation IRS Structure?
A loan-out company is typically a single-owner LLC. They will typically choose to be taxed as an S corporation. This company is the intermediary between the talent and a third party looking to purchase the individual’s services. It is not a unique entity, such as an LLC or corporation. “Loan out” is simply a term to describe a single-owner company that aims to improve an actor’s asset protection while giving tax benefits for the individual employed for short-term engagements.
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Benefits of a Loan Out Corporation
People who earn over $100,000 a year using short-term engagements will benefit from this type of setup. The loan-out arrangement offers tax savings that more than cover the administrative expenses of an LLC. It can partly reduce an entertainer’s tax rate because the actor’s income is exempted from self-employment tax.
The company also gives the entertainer serious asset protection from contract liability instead of being an employee or a sole proprietor. A loan-out corporation can purchase insurance to add more excellent personal injury liability protection.
The loan-out company’s finances must be separate from those of the entertainer. An accountant should open a different bank account for the expenses and income of the company. Lawyers will create a separate contract between the company and the artist who owns the company or the artist’s services if there is a lawsuit or audit of the company’s finances. Contracts should only be made in the name of the company and with the manager signing the contract.
How to Create Loan Out Companies
Creating loan-out companies is the same as creating other corporations. You will need to file information with the Secretary of State and then pay filing fees. Several decisions would need to be made in the corporation’s name, such as the type of corporate filing, C Corp., LLC, or S Corp. Other decisions include the name of the corporation and those in charge of running the corporation. From there, you’ll need to decide on what your goals are and create a clear path to each of them. You don’t have to go at it alone.
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These companies are not suitable for every situation. There are actual expenses involved. There are the legal fees related to setting up the corporation, filing fees paid to the state, and in some places, automatic annual fees that have to be paid to the franchise tax board regardless of how much income is earned by the corporation. Many tax advisors believe that loan companies are not beneficial unless the income exceeds $100,000 a year.
It is always essential to get advice from your CPA or a tax advisory service if you think about setting up loan-out companies. Fusion CPA is a financial advisor that can help answer your questions about loan-out companies, including completing W9’s and filing articles of incorporation. Press the discovery button below to learn more about the services we offer.
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