This is a preview of one of the articles in the new KROST Quarterly Sports & Entertainment Issue, titled “Loan-Out Corporations: To Be or Not To Be” by Douglas Venturelli, Esq. with guest author Jonathan Louie, CPA.
With the passing of the Tax Cuts and Jobs Act (TCJA) of 2017, many actors, writers, directors, and other professionals in the entertainment industry saw their taxes increase as of 2018. Entertainment professionals who earn wages are being hit the hardest because employee business deductions are no longer allowed. Prior to the passing of the new bill, entertainers receiving a W-2 were able to deduct the costs for their union dues, agent commissions, talent managers, accountants, attorneys, and other ordinary business expenses. Altogether, those business expenses typically added up to roughly 20 percent to 35 percent of an artist’s income but are no longer deductible as of 2018. The disallowance of these expense deductions had a particularly negative impact on the entertainment industry.
In light of the 2017 tax reform changes, many accountants are advising their entertainment clients to form loan-out corporations in order to deduct their business expenses. Under a normal employment arrangement, a movie, TV show, or theater production would hire the individual actor, writer, or director. Under a loan-out arrangement, the individual sets up and incorporates a loan-out company. The loan-out company employs the individual and “lends out” their services to the movie, TV show, or theater production. Prior to the enactment TCJA, the main advantage of the loan-out corporation was the full benefit…Continue here »
KROST Quarterly is a digital publication that highlights some of the hot topics in the accounting and finance industry. Volume 2, Issue 4 highlights some of the hot topics in sports & entertainment including tax issues for athletes, Loan-Out Corporations, Qualified Business Income Deduction, and more.