When should a writer become a corporation?
My writing partner and I have sold a few projects, with, hopefully, a few more to come. The question is, at what point should we incorporate into a film company? Before we’ve sold the next project or after? Once we’re more established as a team? When we start making greater than a certain amount of money per year? What are the perks and drawbacks to making such a move?
–Dara
Los Angeles
Most screenwriters who find themselves making a living at the craft end up incorporating at some point — as do actors, directors, and other relatively well-paid professions in the film industry. I became a corporation shortly after Go.
The idea is that the studios don’t hire you directly. Rather, the studio makes a deal to “borrow” your services from a corporation that you’ve created. These one-person corporations are called “loan-outs,” because loaning out your time and talent is all they really do.
What’s the point? Well, there are two main advantages.
The first is financial. Because the studio is paying you as a corporation, rather than as an individual, it’s easier to deduct business expenses, such as office space, assistants and computers. Your corporation can set up a pension plan for its sole employee: you. You can also avoid paying personal income tax on the money for a longer period of time. (Though you do eventually have to pay it.)
The second advantage is liability. Let me first invoke my I’m Not a Laywer Disclaimer — so don’t bank on what I’m saying. But the corporation can help shield your personal assets (your house, your car, your toothbrush) from lawsuits that might come up relating to your screenwriting career. If I’m a bit fuzzy on the details, it’s because I never, ever want to be sued.
The only real drawbacks of incorporating is the expense and the additional paperwork — quarterly statements and such. Although some writers manage to keep up with it themselves, I couldn’t imagine doing it without a business manager and an accountant. (Which are not-insignificant expenses.)
As for what point it makes sense to incorporate, the rule of thumb I heard was when your annual income consistently exceeds $200,000 per year, it’s time to form a loan-out. But that was 1999, so who knows what the current figure is.
My suggestion would be to talk with your attorney, and get his advice. He’s the one who would actually be filing the paperwork with the state to get it all set up.
Also, if you’re living outside the U.S., all bets are off. You’ll need to find someone familiar with the specific rules of your country. For instance, Ireland has amazing tax breaks for writers. I suspect becoming a corporation there would be a terrible idea — but you’d need an expert to tell you.
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July 29th, 2005 at 5:25 pm
I wouldn’t count on too much legal protection for a one man corporation. Even small to mid size business operators can be personally sued. I’d certainly suggest an attorney if you have one.
July 30th, 2005 at 2:36 am
We’re all dying to know the name of your corporation… How did you choose that name ?
July 30th, 2005 at 11:59 am
My loan-out is Quote-Unquote Films, Inc.
August 3rd, 2005 at 8:16 pm
I think “Where’s My Check, Inc.” sounds pretty good.
I’m already incorporated, so anyone can feel free to take that one.
http://www.iRegift.com
August 4th, 2005 at 9:13 pm
Ireland is the land of saints and scholars so anyone who earns a living through artistic means, be it a composer, sculptor, painter, poet, etc. and all forms of fiction writers, playwrights, screenwriters and authors pay no tax whatsoever.
Jealous?
August 5th, 2005 at 10:44 am
Jealous isn’t a strong enough word. Too bad the flight to LA for meetings would be a little long.
August 16th, 2005 at 4:50 am
Kevin, are you serious ? In France, artists must pay about 50% of taxes ! And a business corporation pays about 70%… Should I move to Ireland ?
August 19th, 2005 at 5:01 am
I heard that the Irish government was considering stopping that particular tax break as its being overly abused. A shame, as I’d certainly consider moving there if I ever earn more as a writer …
October 26th, 2005 at 11:59 am
[...] Like most screenwriters of a certain level, I have a loan-out company. I am an employee of that company, as is my assistant, Chad. But it’s not a true production company with financing and a slate of pictures in development. I probably could pull a production company deal at a specific studio, but to me, it’s not really worth it. I’d rather work with all the studios. Filed under: QandA, Words on the page, Los Angeles | October 26, 2005 @ 11:57 am | Permalink | [...]
November 20th, 2005 at 6:28 pm
Loan-outs offer as much asset protection as S and C corps, and the recommended (best suited) entity today is a limited liability company (as sole owner of the loan-out C corp’s stock), because as the Director of an LLC you cannot be named in a lawsuit. The reason for a C corp is not asset protection, it is primarily so that you can do everything John has said above, as well as take valuable medical expense reimbursements, deduct profit sharing plan contributions, set up section 79 bonus to funding cash value life insurance policies on the owners life, and a benefit from host of other business (ordinary and necessary), expenses deductions. But remember, you could also have a DBA (open a bank account, and you have a Doing Business As…), and then ALSO Schedule C your entire life’s vices, habits, and avocational diversions –because writer’s entire lives are food for the grist mill of screenplay writing.
June 22nd, 2006 at 9:28 pm
C corps are still the standard for loan-outs, though S corps are sometimes used. The way LLCs are taxed in California makes them a marginal choice in most cases. When properly organized and maintained (that is, by your attorney and accountant), loan-out corporations * are * generally effective at providing limited liability protection to protect your personal assets, and will also provide the possible tax advantages alluded to above - which may benefit you at a level well below $200K/yr depending on your circumstances. Schedule C audits are on the rise, and this is another reason to consider incorporating, as no one wants that hassle. Hope this helps.
September 6th, 2006 at 5:42 pm
I am a writer with a loan out corporation which I have had for twenty years with an unblemished record. I am about to leave the writing profession and move to another state. Is it possible to sell my corporation to somebody who would benefit from its sterling reputation?