How do I start a business? Tax issues?

[Angelshare1]

I mean from the legal/paperwork side. Would you set up an LLC, corporation, ect? Also how do you search for a name to make sure your name is not already taken? (The name is not my family name.)

Also if you are making a film that spans over more than one year, do you take all the expenses on your tax return? (US tax law is where I'm coming from!) Would you start a company and file a return every year and take the loss on your personal return if a pass thru entity? I know the IRS has something called hobby income where you have to make money 2/5 years or something like that otherwise they assume it's a hobby rather than a business and therefore not deductible. Since lots of folks submit films and shorts with no hope of ever making money, does the IRS recognize this as a business or hobby.

Some film folks will work on student projects and other creative projects outside their area of expertise (for example, someone who shoots commercials only will do camera work for a student horror film just to stay fresh). In this situation would you deduct expenses? I'd tend to argue that doing work like that is contributing to your creative capital and therefore a legitimate business deduction.

My situation is that I'm buying equipment for a feature film to be shot next spring and distributed as soon as possible after that. It's just me, a sole proprietor. I have a day job with more than enough income for the expenses I'm anticipating to offset.

Thanks!

 

[Dave ©]

So you know where I'm coming from. I ran a business consulting company for about 4 years before shutting it down to take a full-time job with a company near my home (don't read much into that; my company was successful; I shut it down for personal reasons). For that company, I setup an S Corp after doing a lot of research, consulting with others doing similar things and consulting with an accountant. It was definitely intimidating at first (and I have a BS in Business and an MBA), filling out all the paperwork, setting up a bookkeeping process/system, etc but it easy within about 3 months. In the end, I'd do it all over again and probably will in this industry once the timing is right for me personally. The one thing I'd do differently next time around is find someone else to do the month-to-month bookkeeping. I did it myself. It's not hard but it is tedious.

You can do this all on your own but I imagine that you really want to focus on growing your business and not doing all the paperwork. With that in mind, I'd find a good, local accountant who can guide you through this process. Look for someone who has setup companies before, who can support you with bookkeeping, can help with year-end taxes, and, most importantly, someone who you understand and trust (look for referrals). But before you do that, I'd go to your local library and read up on the different forms of businesses. You may find that you feel comfortable doing the setup paperwork yourself. There are lots of websites that will facilitate it for you for a few hundred dollars. But I'd still find a local accountant/bookkeeper!

Would you set up an LLC, corporation, ect?

There are big advantages of an S Corp. Go look it up. Short of it is that it's a separate legal entity (liability, expenses) but income gain/loss passes through to you personally each year (well, technically to all shareholders/owners).

how do you search for a name to make sure your name is not already taken?

When you file your S Corp application with your state, they'll let you know if your name has already been taken. But you should do as much due diligence on your own (e.g. google your name, google similar names, google abbreviations, etc).

if you are making a film that spans over more than one year, do you take all the expenses on your tax return

Different answer for different "expenses". Your expensive gear (camera, computer, etc) will go on your books as assets and will be depreciated over several years (depending on expected lifetime of gear). Your inexpensive items (office supplies, cheap software, etc) will just be expensed in the year they were purchased. Things like travel are counted as they are occurred. Again, talk to an account/bookkeeper.

Would you start a company and file a return every year and take the loss on your personal return if a pass thru entity?

Depends on which form of business you setup. You need to file a return every year. If it's a pass-through entity (like an S Corp), then you'll add your S Corp income gain/loss on your personal return.

IRS has something called hobby income where you have to make money 2/5 years or something like that otherwise they assume it's a hobby rather than a business and therefore not deductible. Since lots of folks submit films and shorts with no hope of ever making money, does the IRS recognize this as a business or hobby.

Don't know anything about this. Not sure how the "Since lots of folks submit films..." part fits with the first part. A business can lose money for many years in a row and still be considered a business (e.g. Amazon.com and many, many pharmaceutical companies).

Some film folks will work on student projects and other creative projects outside their area of expertise (for example, someone who shoots commercials only will do camera work for a student horror film just to stay fresh). In this situation would you deduct expenses? I'd tend to argue that doing work like that is contributing to your creative capital and therefore a legitimate business deduction.

You can expense things like mileage, tolls, etc even if you don't make any money for your work. If you are paying yourself a salary then your time is irrelevant.

But I think there's a broader question buried within your question that you should also consider when setting up your company (assuming you do so). Make sure your articles of incorporation are as broad as possible so you don't limit what your company can legitimately do without refiling your papers. Come up with an exhaustive list of things your company might do including tangential things (e.g. web design, graphics, computers, print, consulting, teaching). Do your research.

I'm buying equipment for a feature film to be shot next spring and distributed as soon as possible after that.

Buy it and keep all your receipts. Once you setup your company, your company can buy the equipment from you and then it all becomes property of your company.

Did I mention that you might want to consult with a local accountant? And maybe even a lawyer?