Disadvantages of a Loan Out
“Keeping you at a disadvantage is an advantage I intend to keep.” - THE HATEFUL EIGHT
written and directed by Quentin Tarantino
(3.5-minute read)
There are many benefits to having your own Loan Out company. You can read some of them HERE. But having your own LLC, S-Corp, or Loan Out company doesn’t mean you’re on Easy Street. Technically, you are now a business owner. Act like one!
Here are a few downsides to having your own Loan Out company. I’m not a tax or legal expert so please consult with one before making decisions.
RUN THAT PAYROLL
Even though your profession is wildly inconsistent, it doesn’t mean you can avoid certain laws. You just have to get creative, which is your strong suit!
You do not have to give yourself a paycheck every two weeks. You don’t even have to pay yourself every month. Heck, you’re the owner so you can pay yourself just one time per year if you wanted. But you do have to file, or “run”, payroll at least on a quarterly basis.
If you didn’t make any money from April through June, you can file a $0 payroll. But you MUST file it. Hiring a payroll service is probably worth it. They will make the appropriate filings on your behalf so you’re not delinquent and run into penalties.
You will have to set aside money in order to pay your payroll taxes each time you run it. You can usually estimate around 16% of your paycheck going toward payroll taxes.
How much are you paying yourself? You’re going to have to determine this. Let’s use an example. Your Loan Out made $100k this quarter. You will have business expenses and want to keep money in your business account for future expenses too. Let’s say that amount is $10k. You want to hold back about 25% for income taxes, so that’s $25k. Now we’re down to $65k left over. If you paid yourself $50k, then you might owe about $8,000 in payroll taxes.
This amount may be too much, not enough, or just right. Once you get together with your tax preparer and financial planner, you can figure out a more accurate amount. If you’ve not been paying yourself enough come December, you can always run a much larger payroll amount at the end of the year.
KEEP THOSE BOOKS
For many business owners, having accurate, monthly bookkeeping is vital to their sustainability. For screenwriters, directors, and those with Loan Outs, this isn’t necessarily true. But bookkeeping still has to be done by somebody.
Bookkeeping is mainly required for your tax returns. Your tax preparer will need this information when preparing your business tax returns. They need to to know how much you spent on certain things like office supplies, streaming services, movie tickets, office space, and a slew of other items. It’s the equivalent of giving them a pile of receipts.
I’ve done bookkeeping for screenwriters. I’ve also seen the books for other non-creative business owners. Let me tell you, there is a HUGE difference. In my experience, they are nothing alike. A screenwriter’s bookkeeping is incredibly easy by comparison. So, you can do it yourself or you can outsource it. You can generally hire the same people who run your payroll to also do your bookkeeping.
PAY THOSE TAXES AND FEES
You now have to file a business tax return along with your personal tax return. Tax preparers usually charge a lot more for business tax returns. Add this expense to the mix.
If you’re in California or New York, you will be paying additional business taxes. For most California businesses, regardless if they make money or not, they must pay $800 per year. I believe NYC residents have to pay an extra tax as well. The city of Los Angeles also requires businesses that make a certain amount to pay a city tax.
Other paperwork and filings need to take place. Annual Meeting Minutes are something that are usually required in case you are audited. Filing a Statement of Information with California needs to be done every year or every-other year. Other states usually have similar filings and come with a small fee.
While having your own Loan Out comes with its advantages, there are some other things to think about before making the decision to incorporate yourself.
If you’d like more information about Loan Outs, you can schedule a complimentary meeting HERE.
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