Producers a tax question

[kcantankerous]

Hello All,

I wanted to know does the IRS view your business as a hobby or a for profit venture. If you do not know the answer to this question you may be paying too much in taxes.

Thanks,
K

 

[3xPIN]

Good question. I have been curious about that too. Taxes must be pain in the but for you guys.

 

[kcantankerous]

Good question. I have been curious about that too. Taxes must be pain in the but for you guys.

Yea, this thread was actually meant to be somewhat informative but I want to see if there is any interest before I start posting some info. I don't want to waste server space unnecessarily. The difference between hobby and business as far as the IRS is concerned can cost these guys and girls a chunk of money.

Thanks,
K

 

[TickleMyFancy]

Well I'm not a producer but I am curious about this lol.
If I ever decide to make some videos, it would be good information 🙂

 

[MrTicklefeet]

I don't want to waste server space unnecessarily.

Thanks,
K

This wouldn't be wasting space unnecessarily. I've never seen this question before, and it might come in handy for those thinking about opening a clip store, or for those who have who haven't even thought about this question. We get which celebrity would you like to tickle so much, this question is rather refreshing.

 

[kcantankerous]

Hello,

Thanks everyone, I will post some information about the difference between a hobby and a business from the IRS's prospective tonight. That is unless some tax savy person beats me to the punch. The reason for this is if you are a business the IRS allows you to take losses against your income. Furthermore, you can accumulate losses and apply them to future income.

If you are a hobby however, you do not get those luxuries. Anyways, I will post more information on the subject. Seeing as I see that people are curious. Full disclosure I am in the accounting program but I am not a tax professional or an accounting professional yet. However, anything I post on the subject can be confirmed via the IRS website.

Thanks,
K

 

[kcantankerous]

Hello,

I know I said this evening but I had a little more time on my hands. First off here is the link to the IRS website on the matter: http://www.irs.gov/newsroom/article/0,,id=169490,00.html

Generally speaking the IRS says your activity is a business if it makes profit at least 3 out of 5 years of operation.
- This can be countered by arguing that your business is a start-up which is why a profit has yet to be made (this is for you producers who been in business less than the 3 to 5 year threshold).

You want to be termed a business whenever possible because this would allow you to take ordinary losses against your income. These are considered deductions for AGI (Adjusted Gross Income) as oppose to deductions from AGI (typically Itemized deductions).

Itemized deductions are crappy because the only way you'll get to benefit is if your itemized deductions exceed your standard deductions. Furthermore, you can only itemize expenses that exceed 2% of AGI. The real ass kicker is you can not participate in loss carryforwards. Those benefit start-ups that generally always lose money in the early stages and eventually become profitable later.

In addition you could be eligible for a business in the home deduction. I'd suggest, if you want to take this deduction, to have a part of the house reserved for business activities. For example storing servers and information storage, studio space, and whatever else.

Keep all receipts and of course whatever the regulations state a filming company needs for at least 5 years. You must act as though you might get audited at anytime. I'd suggest getting a scanner to scan all receipts and what not so you don't have to spend to much on paper mediums. Plus you could theoretically hold on to receipts and other financial information indefinitely.

I'm assuming that given the nature of filming many producers may function as sole proprietorships or partnerships, please correct me if I am wrong. You probably treat the models as independent contractors as well.

As you can see this all can get pretty technical really fast so I think I will try to accurately answer any clarification questions any of you may have. The other thing is make sure you file your business with the state comptroller, county, and of course the IRS.

I want you all to be successful, some of this is probably stuff many of you have seen. For the ones who haven't please ask questions, this will help me gain a clearer understanding as well since teaching is the best way to learn.

If anyone finds any errors in what I posted so far or any answers I give feel free to correct me. I again am not a professional yet but that is why I am in school.

Thanks,
K

 

[Oblesklk]

I'm assuming that given the nature of filming many producers may function as sole proprietorships or partnerships, please correct me if I am wrong. You probably treat the models as independent contractors as well.

Thanks,
K

I certainly hope not! I hope none of the producers here are structured as sole proprietorships or partnerships due to lack of asset protection and lack of SE tax minimization strategies these forms have. I assume most producers treat models as independent contractors, but given the nature of the relationship you have to be careful. The fed probably won't come after you, but your state very well could try to reclass them as employees. The nature of modeling lends itself to independent contractor classification, so I've not heard of this becoming an issue.

 

[TickleCuties]

To run a clip store, you have to provide a SSN or EIN (corporate tax ID), and they formally pay you out as commission income - so it's taxable and on the up and up, not under the table.

 

[kcantankerous]

I certainly hope not! I hope none of the producers here are structured as sole proprietorships or partnerships due to lack of asset protection and lack of SE tax minimization strategies these forms have. I assume most producers treat models as independent contractors, but given the nature of the relationship you have to be careful. The fed probably won't come after you, but your state very well could try to reclass them as employees. The nature of modeling lends itself to independent contractor classification, so I've not heard of this becoming an issue.

So what corporate structure would a producer have? I understand your lack of stockholders equity comment and lack of assets but they would have to choose a business structure when they file a schedule C tax form. Assuming that they are a business and not a hobby. BTW, have you spotted any other potential inaccuracies in what I posted earlier?

KenPlaysGuitar what do you mean, they pay you out as commission income are you referring to Clips4Sale? Since you filed, did you ever record business losses? I imagine that it wouldn't be too hard to break even but I've heard producers say that they have lost money producing clips.

Generally, I imagine a producer's assets would include a camera, lights, computer, server, any implimentations, etc. Some of these assets could be depreciated (reduction of value due to use or obselecence) over a determined useful life. It may not amount to much but I never priced these things out before so maybe it could.

Thanks
K

 

[TickleCuties]

I'm losing a lot now, because I'm new and don't sell a lot yet. Income is commission income from C4S payouts, expenses are deductions.

 

[kcantankerous]

I'm losing a lot now, because I'm new and don't sell a lot yet. Income is commission income from C4S payouts, expenses are deductions.

Yeah, so you can definitely take deductions for AGI which will lower your overall tax liability. So combined with your income from your primary job should be of some consolation. You already filed your schedule C and it is clear that your profit seeking. As always please correct me tax professionals if I have erred.

Thanks,
K

 

[kcantankerous]

Maybe this thread should be moved to another location? I hope I shared new information to some or at least gotten some who haven't thought about this to start. The other deduction that hopefully is utilized is the office in the home deduction. Possibly even travel expenses (it seems as though models travel to you guys though)

However, I do remember TA saying he was traveling with Tasha to Florida to do some shoots. So technically he could deduct those as travel expenses. TA if you see this thread let me know if I am right or completely off the mark.

Furthermore, lets say you take a photography or filming class to improve your skills that too is a deduction. Anyways, If I am incorrect please let me know. Otherwise, let me know you have any questions and I will do my best to answer them.

Thanks,
K