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To incorporate or not


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#1 Brian Dzyak

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Posted 15 April 2010 - 04:53 PM

I know several Freelancers in the industry who have incorporated. They claim that there are financial benefits for doing so.

I'm considering it for myself.

Does anyone have any personal experience with pros and cons? Thanks!
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#2 Richard Boddington

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Posted 15 April 2010 - 05:39 PM

I just assumed Brian Dzyak Inc already existed? With publishing and production divisions spanning the globe.

Hey Brian, here's the irony, you could become the very thing you despise.....a corporation!

I'm assuming Milton Friedman need not apply for a job. :D

R,
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#3 Paul Bruening

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Posted 15 April 2010 - 08:40 PM

I just assumed Brian Dzyak Inc already existed? With publishing and production divisions spanning the globe.

Hey Brian, here's the irony, you could become the very thing you despise.....a corporation!

I'm assuming Milton Friedman need not apply for a job. :D

R,


While I can parse the difference between a responsible and irresponsible corporate entity, Richard does bring up a curious predicament for you.
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#4 Brian Dzyak

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Posted 16 April 2010 - 04:49 PM

I just assumed Brian Dzyak Inc already existed? With publishing and production divisions spanning the globe.

Hey Brian, here's the irony, you could become the very thing you despise.....a corporation!

I'm assuming Milton Friedman need not apply for a job. :D

R,



Funny. :)

sigh.... you miss the point, as most Conservatives do. I personally don't despise Corporations. They have a valid purpose. The problem is their undo influence on government. Mussolini termed that as "Fascism."


Now, does anyone have any serious answers to the original question? Thanks! :)
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#5 Richard Boddington

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Posted 16 April 2010 - 07:03 PM

Now, does anyone have any serious answers to the original question? Thanks! :)


Uh, not really, it's more entertaining to make jokes.

US and Canadian law are similar on this issue. On the down side you will need to prepare a separate tax return for the corporation and one for yourself, so there will be higher accounting costs each year.

The general advantage is that corporations pay a lower rate of tax than individuals do. But the money you pay yourself from the corporation will be taxed at the same rate as any income you receive. So you need to pay yourself out of the corporation via a dividend which should be taxed at a lower rate than if it where "income."

At the end of the year the corporation should have no money left to be taxed, it will all be taken out in expenses and dividends that are paid to you as the only director of the corporation.

A corporation will also offer you additional legal protection should some one wish to sue your company, and if your corporation files for bankruptcy this will not affect your personal credit.

I'm not an accountant, but I play one on TV. :D

R,
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#6 Paul Bruening

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Posted 16 April 2010 - 07:43 PM

Legitimately reducing taxes and getting out of lawsuit trouble are the two principle reasons for incorporating. Is it legal to do this? Sure it is. Especially, in our overly litigious USA. People seem to think Hollywood budgets follow every camera around. But, squirming out of justifiable responsibility for incidents and actions is what it often gets used for. If you did incorporate, Brian, wouldn't you do the same based on survival and expediency? The ethical considerations are very real.
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#7 Brian Dzyak

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Posted 16 April 2010 - 08:06 PM

Legitimately reducing taxes and getting out of lawsuit trouble are the two principle reasons for incorporating. Is it legal to do this? Sure it is. Especially, in our overly litigious USA. People seem to think Hollywood budgets follow every camera around. But, squirming out of justifiable responsibility for incidents and actions is what it often gets used for. If you did incorporate, Brian, wouldn't you do the same based on survival and expediency? The ethical considerations are very real.


Hmm... well, I'm not really the type of person who tries to "squirm out of" problems, particularly if I was responsible. Not everyone on this planet is evil. Have a little faith! :)

Thanks for the info so far. Anyone else have personal experience?
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#8 Andre Labous

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Posted 17 April 2010 - 02:59 PM

I am a freelance DP living in Florida and incorporated about 10 years ago. I was told with social security tax incorporation would save money. When you are employed by the man 7.5% SS is paid by the employee and 7.5% is paid by the employer. When you are an independent contractor you pay the whole 15%. Once incorporated what Mr. Boddington said is correct. Your W2 represents minimum salary and dividends are not taxed by social security. However there is the expense of the accountant to make sure it's all smooth. You end up paying for alot more for management of monthly payments to the IRS to the accountant and state. (not sure about CA) As I understand it it works to your benefit with income over $40,000 because you end up paying about $2800 annually to accounting. After that your saving that 7.5% The one drawback I have found is when you are an independent contractor you're kind of under the radar. When you become incorporated big brother is all over you. Also I pay monthly IRS tax by being incorporated. Hope that helps and hope I'm sorta right.
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#9 John Brawley

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Posted 17 April 2010 - 05:56 PM

I know several Freelancers in the industry who have incorporated. They claim that there are financial benefits for doing so.

I'm considering it for myself.

Does anyone have any personal experience with pros and cons? Thanks!



In Australia, the main advantages to incorporation are reducing the tax bracket you sit in. Corporate tax is 30% across the board in Australia. If you're in the highest personal income tax bracket it's .45c for every dollar earned.

It's more expensive to set up and report, but if you're in a higher income bracket, it's generally worthwhile doing.

jb
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#10 Joe Carney

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Posted 20 April 2010 - 05:11 PM

Are most you incorporating as Sole Proprietor, Sub Chapter S or LLC?

Edited by Joe Carney, 20 April 2010 - 05:12 PM.

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#11 Hal Smith

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Posted 20 April 2010 - 09:25 PM

..............The one drawback I have found is when you are an independent contractor you're kind of under the radar. When you become incorporated big brother is all over you.


The advice I got years ago from my CPA was pretty much that; stay under the radar as a sole proprietor filing a Schedule "C" with my Federal and State income taxes. I do pay the additional FICA taxes but I otherwise don't pay any business and/or occupational taxes. Since the primary purpose of my business is service(s), not sales, I don't even need sales tax registration.

The 7.5% extra FICA tax is very little to pay for the freedom from paperwork and hassle.
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#12 John Thomas

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Posted 22 April 2010 - 04:36 PM

I know several Freelancers in the industry who have incorporated. They claim that there are financial benefits for doing so.

I'm considering it for myself.

Does anyone have any personal experience with pros and cons? Thanks!


When my corporation buys some Tiffen filters for a job I'm working on, the corporation uses pre-taxed dollars so I save 30% there compared to dollars from my own pocket.

When the corporation pays me my monthly salary the corporation can also send up to 40% of my salary to my retirement plan where it grows tax-deferred. (up to a $40,000 annual cap)

Extra paperwork, quarterly Fed and State taxes, can be a pain.

Good luck
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#13 Paul Bruening

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Posted 22 April 2010 - 06:58 PM

What's your asset situation, Brian? I mean in terms of equipment? Do I recall that you are principally a renter? LLCs are an inexpensive way to separate equipment, vehicles included, from a production. That way, if the production causes some incident, it holds none of the significant assets. It can be a way to keep a production on the edge of starvation so that monies can be invested, trickle fashion, as the production ticks along without incident. While these are more of a concern for a producer instead of a freelancer, they are worth considering.

Then there's all that little, nuisance, yet, profitable right-off aspect that incorporation offers. The accounting is pretty straight forward. At our level, you don't really have to pay an accountant once you learn the tricks. Depends what your tolerance for math, organization and detail are.
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#14 Gregory Middleton

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Posted 22 April 2010 - 07:11 PM

The laws in Canada are a bit different, but I thought I would add one note.
If you earn enough to leave some money in your company , and not have to pay most of it to yourself as personal income , then it can be a beneficial thing. Basically a Corporation , especially a 'personal services corp' essentially offers a tax deferral, not a complete tax break. Money in your company that you reinvest in your business ( equipment etc ).
In Canada as a non incorporated sole proprietor ( contractor ) you can still write off all the same expenses that the company would except without the quarterly tax payments and much simplified accounting. If you have trouble saving money, remember that the onus will be more on your own self discipline as a Corporation.
Good Luck!
g

I know several Freelancers in the industry who have incorporated. They claim that there are financial benefits for doing so.

I'm considering it for myself.

Does anyone have any personal experience with pros and cons? Thanks!


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#15 Larry Blanford

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Posted 25 April 2010 - 01:21 PM

There's been numerous articles over the years on whether to incorporate or not to incorporate and most end up stating that unless your making around 150K a year, it's probably not worth it.

Positive side...your able to put up to 46K a year into your personal corporate retirement...and it's a tax deduction off your corporation.

Negative side...the extra Social Security and increased accounting costs. On a side note, I've noticed the last few years where some of my crew that have incorporated were not allowed to work as "loan-outs" by the studios. More and more it's only the DP's and higher salaried Steadicam Ops that are being allowed to work via their Corporations.

Also there is no actual "Corporate Taxes"..at least not in the US. At the end of each year your accountant basically "zero's" you out. Meaning whatever is left in the Corporate Account is disbursed to you as income, hence the Corporation never actually "profits" so no tax liabilities.

I incorporated 10 years ago and am now fairly well versed in the pro's and con's. For me it's been worth it, but from my own experience a good accountant is very key.

Also I would suggest keeping your expenses and income up to date via Quickbooks or Quicken. When it's time for the accountant to review, I just send over the file via an email.
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