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1099 Crackdown

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A studio owner I was working for was lamenting about getting screwed with by the IRS for having so many 1099 freelancers, and now I heard that a lot of studios in LA are dealing with the same thing. WTF is going on?

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A studio owner I was working for was lamenting about getting screwed with by the IRS for having so many 1099 freelancers, and now I heard that a lot of studios in LA are dealing with the same thing. WTF is going on?

 

IRS is seeing so much freelance and 1099s an issue, more and more especially in California, there's less taxes being collected. If you have freelancers/contractors in studio working and using the studio's equipment, the IRS sees them as being employees and money they should be receiving. It's arguable if the freelancer works from home, questionable if most the work they do is for the same studio. If the freelancers bring in their own workstation, have an s-corp, haven't been commuting to the same location for a year, shouldn't be a problem. I've recently put some freelancers on payroll to avoid getting audited.

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i used to bring people in to the office for contract work, but the whole contractor/employee tax thing kinda hung over my head. it was my equipment, and they were only there for 3 months.... but still, it was debatable.

 

a little while ago i shut down my office and any work that is done is always from their own place. it's sooo much easier.

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Depends. I think most places will take LLC, but I know a couple places here in NYC that will only take a full on inc. I was told that is because especially in NY, the LLC rules are very complicated and a lot of people who think they have an LLC, in fact don't. Even though I am now on staff somewhere, I am still incorporated and it wasn't all that difficult to do. Cost me a couple grand and my accountant took care of everything.

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By incorporated, what exactly is everyone talking about? A full on Incorporation, or does an LLC qualify?

 

A single-member LLC is filed the same as an S-Corp. As long as you are the only member of the LLC, and are listed as the 'Managing Member' - it works out for everyone. No corporate tax on your end - only regular personal income tax.

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I've been thinking of incorporating for some time now.

I have so many questions, I'm thinking of just jumping in to an LLC.

Like how much salary do you pay yourself? How do you estimate this?

 

Anyone use legal zoom to incorporate??

 

http://www.legalzoom.com/limited-liability-company/limited-liability-company-pricing.html

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Yes, I did LegalZoom. Its easy as hell set it all up, but make sure you file absolutely everything when you are supposed to so you do not get hit with state fines. LegalZoom is a bit on the expensive side, considering you can do the exact same thing yourself for less than $100, but I liked knowing that nothing was missed. They will try to sell you all kinds of bs services afterward.. I stayed away from those and can't say too much about them. (accounting service, etc)

 

It takes about 2 months for everything to be said and done and you are able to begin business under your new entity if your on the ball, so its best to jump on it sooner than later. Make sure to speak with a CPA, if only for an initial sit-down to get a better understanding of what you need to do for your particular situation and lifestyle.

 

Again, as a single-member LLC, your business entity can be easily understood as an extension of yourself. Treat everything as you would if you were freelancing. I personally do not pay myself a "salary"... Just keep your books in order. I use freshbooks and love it. If you put away 30% of net (gross minus expenses) you will always have a little extra money after filing your taxes each quarter. Filing taxes each quarter sounds scary - but its actually much easier than yearly and keeps your books clean.

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Yes, I did LegalZoom. Its easy as hell set it all up, but make sure you file absolutely everything when you are supposed to so you do not get hit with state fines. LegalZoom is a bit on the expensive side, considering you can do the exact same thing yourself for less than $100, but I liked knowing that nothing was missed. They will try to sell you all kinds of bs services afterward.. I stayed away from those and can't say too much about them. (accounting service, etc)

 

It takes about 2 months for everything to be said and done and you are able to begin business under your new entity if your on the ball, so its best to jump on it sooner than later. Make sure to speak with a CPA, if only for an initial sit-down to get a better understanding of what you need to do for your particular situation and lifestyle.

 

Again, as a single-member LLC, your business entity can be easily understood as an extension of yourself. Treat everything as you would if you were freelancing. I personally do not pay myself a "salary"... Just keep your books in order. I use freshbooks and love it. If you put away 30% of net (gross minus expenses) you will always have a little extra money after filing your taxes each quarter. Filing taxes each quarter sounds scary - but its actually much easier than yearly and keeps your books clean.

 

Did you opt for S-Corp classification or just the default LLC classification? Can a single member LLC even have S-Corp classification in California? Please forgive my ignorance here. I've been reading up on it, but it is still a bit confusing. For S-Corp, aside from quarterly filing, don't you need to have Corporate Meetings with minutes taken, etc.. at least that was my understanding from what I read on the State web-site. I know asking a CPA would probably answer all of these questions, but I'm trying to get as much information as possible before paying for that sit down.

 

I was looking at Legal Zoom as well. Although, I'm still up in the air about that one. I'm tempted to try doing it myself.

Edited by tvp

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Did you opt for S-Corp classification or just the default LLC classification? Can a single member LLC even have S-Corp classification in California? Please forgive my ignorance here. I've been reading up on it, but it is still a bit confusing. For S-Corp, aside from quarterly filing, don't you need to have Corporate Meetings with minutes taken, etc.. at least that was my understanding from what I read on the State web-site. I know asking a CPA would probably answer all of these questions, but I'm trying to get as much information as possible before paying for that sit down.

 

I was looking at Legal Zoom as well. Although, I'm still up in the air about that one. I'm tempted to try doing it myself.

 

No worries about not knowing. The whole process is rather new to me as well, and it can indeed be very confusing. It works different for everyone's unique situation - so again, be sure to get a good CPA.

 

I filed for an LLC. I found out later, while filing, that a single-member LLC in California technically files as an S-Corp. You will hear a lot of whining about an "$800 California LLC Tax", but from what I have been told (and just filed / approved), this is simply a yearly CA minimum tax - not an additional tax.

 

You are correct in that an LLC or an S-Corp do not require Corporate Minutes records. However, from my research prior to filing, I read that S-Corps are a bitch when it comes to international business. Highly taxed and a lot of paperwork. I have some clients in the UK and I have a small venture project that involves manufacturing in China - so that part scared me away from filing as an S-Corp.

 

I suggest that you do the LegalZoom thing first, prior to a sit-down with a CPA. A ton of your questions will be answered there. Plus - you answer a questionnaire prior to your order to ensure that the classification type you are filing for is really what you need. Once you have the paperwork from LegalZoom, go and open a business checking account, and get some type of accounting management solution (quickbooks, freshbooks, etc). I highly recommend the Wells Fargo Small Business Program. It has the best online tools for geeks like us. Once you have all that - then speak with a CPA.

 

I'm not a CPA and am fairly new to this myself (13 months incorporated).. Just sharing what I have done and learned in that time. You simply have to dive in and get wet. Legal Zoom, a CPA, and the bank will pretty much hold your hand through every step.

 

LegalZoom is indeed around $125 more than doing it all yourself, but they handle absolutely everything for you in about 1/3 the time it would take if you did it yourself. Once you fill out everything there, they file with the state, pay the fees, etc. Plus, they let you know via email during the first year that something you should be filing is coming up. Well worth the piece of mind if you ask me.

Edited by AromaKat

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