Benefits of Your Own Loan Out Company
“Children are hideous little creatures. Terrible, taxing burdens.” - LUCIFER
Written by Tom Kapinos, Directed by Len Wiseman
(3.5-minute read)
Last year I was involved in a Twitter exchange with a writer who was confused about the term “loan out.” A brilliant WGA Board member answered his question. I thought she was spot-on in her advice and I became irrationally excited that they were discussing financial literacy. In short, she recommended that certain writers become a business entity in order to save on taxes. I agreed but that’s just the tip of the iceberg when it comes to a Loan Out.
I also learned that writers and directors use the term “loan out” as short-hand for incorporating themselves or creating their own company.
Before we get into it, I must reiterate that this is not tax or legal advice. Please speak with a professional.
THE BASICS
A Loan Out is a company you legally create. Technically your company gets paid by the studio and then your company pays you. Your company “loans out” your services to the studio. Get it?
An S-Corp is just a filing status for the IRS in order to tax an existing company a certain way. Therefore you have to create the company first then “elect” to have it taxed as an S-Corp.
In my experiences dealing with the studios and agents, if you’re in a hurry and need to sign a contract as your newly-created company, the studio will NOT accept an LLC unless it has the S-Corp status. That can take many, many months. There are ways around this so I highly encourage you to seek a professional. I know a guy!
TAX BENEFITS
The tax savings from being a corporation instead of a W2 employee are usually worth it, but it really depends on your income. As a CPA told me, “It’s not about having more deductions. It’s about deducting what you currently have.” For example, regular W2 employees may not be able to deduct their streaming service subscription. But if it’s vital to your company it might be considered a business expense. The benefits of having a good CPA, who is a tax preparer and understands the tax code, are also phenomenal. By the way, instead of the term “deductions” you may be using “write-offs.” That’s fine.
There are other self-employment taxes that you may be able to reduce or avoid if you’re an S-Corp. But don’t get cute with the IRS. They know where you live. Did I mention that you should speak to a professional first?
PRODUCER’S BENEFIT
From a Producer’s perspective, hiring your company as opposed to you as an employee is usually more attractive as it may save them money, especially in the Independent Film world. Any time producers can save a dollar they will. Quite literally too. I was working on a show when the lunch menu made its rounds and everybody placed their orders. Five minutes later the producer came out of his office and said, “We can’t order from here. Our budget is twelve dollars per person and this is thirteen.”
INVESTMENT BENEFITS
Now for possibly the biggest benefit of them all: Retirement Plan contributions. As of 2023, an individual can only contribute $6,500 per year into a Roth IRA or deductible amount into a Traditional IRA ($7,500 if you’re 50+). HOWEVER, if you make too much money then those amounts are $0. For many of you, once you get to the point of creating your own Loan Out then you’re probably in that phase-out category of making too much.
Corporations, on the other hand, don’t have such limits. You can make as much money as you want and still be able to contribute to a tax-advantaged retirement plan through your Loan Out. There are limits to how much you can contribute but it’s not $6,500. It’s more than ten times that amount. Depending on your income, you may be able to contribute more than $66,000 to your Loan Out’s retirement plan per year. Oh, and it’s likely to be tax-deductible as a business expense.
THAT’S NOT ALL
This is certainly not comprehensive and there’s WAY more to consider. Check back here for another blog that will highlight some of the disadvantages to creating your own Loan Out. This blog certainly doesn’t cover all the advantages or all of the details. For now, just know that a Loan Out doesn’t have to be a complicated thing. In fact, it might be beneficial. Maybe the IRS isn’t as bad as you thought.
If you’d like more information about Loan Outs you can schedule a Complimentary Meeting HERE.
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