Business entities for studio work

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Phobos
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Business entities for studio work

Post by Phobos » Mon Sep 13, 2021 11:11 am

What's the best way to run your operations if you're a small, one-person shop? LLC? Sole prop? I'm in WA state, if it matters. And I have my own space; I don't rent/work out of other studios, and I don't travel to other states to record (yet, anyway).

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Re: Business entities for studio work

Post by drumsound » Tue Sep 14, 2021 10:52 am

Mine is a sole propriator. I probably should make it an LLC, but it's worked all these years as is...

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Re: Business entities for studio work

Post by vvv » Tue Sep 14, 2021 2:19 pm

One thing I know is that incorporating can help (not guaranteed) insulate personal or other assets from claims against those of the corporation.

For example, if you get sued by someone injured on the premises, or by the landlord (if any), or even failure to perform per a contract, it's possible incorporation will help.

It also makes it more difficult and might dissuade a claimant making a claim beyond any insurance.

There are variable to the analysis, but a local lawyer, or possibly a tax accountant, can run through your specific situation. Often, a consult fee will be waived if you give them the work of incorporating.
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digitaldrummer
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Re: Business entities for studio work

Post by digitaldrummer » Tue Sep 14, 2021 2:54 pm

another option to look into might be an "umbrella policy", which can also possibly offer some protection , especially if you own the property. (but I am certainly no expert in this area)
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Re: Business entities for studio work

Post by vvv » Thu Sep 16, 2021 9:29 pm

An umbrella policy is typically used to increase your coverage over the amount a co-defendant has (where your standard coverage has a set-off provision), and/or to increase the amount of coverage over your standard policy.

But, IANAIAAL.
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Re: Business entities for studio work

Post by roscoenyc » Fri Sep 17, 2021 6:13 am

I started a corporation as a producer even before having a studio.
It enabled me to invest in gear and it also really helped with clients so you could invoice them for everything in one swoop and not request them to cut checks for studio, engineer, players and so on. It really has been helpful for me.

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A.David.MacKinnon
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Re: Business entities for studio work

Post by A.David.MacKinnon » Fri Sep 17, 2021 6:52 am

I'm in Canada so not much of my advice translates to where you live. But, if you are thinking of incorporating I would strongly suggest looking into the yearly cost of having someone prep your corporate tax returns. It can be very costly and not necessarily something you consider when you're trying to decide how to structure your business.

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Re: Business entities for studio work

Post by vvv » Fri Sep 17, 2021 7:22 am

Don't know about Canada, but believe it or not corporate books here - state and Fed - are not that bad.

An in-house person can actually do them if they can do book-keeping and the odd bit of research/following instructions.

Having an accountant is easier and IMO preferable for many reasons (including the imprimatur of competence and honesty). I use an accountant; once a year I spend a half day or so putting together numbers on their suggested info form and FAX (not email) it to them, and get the filings back in a week or three. In my case - other than when I had a specific issue re a divorce - their bill is 1-2K.

I incorporated many years ago, but I'm pretty sure costs of setting up a closely-held are not bad either - 3K? I'm pretty confident under 5K and you only do it the once.

Mine is a service industry so my books are not complicated (no depreciation issues, minimal supplies purchases, no associated real estate owned, usual expenses like insurance and licensure - basically, $ in/$ out), but IMO if you are operating on anything more than a hobby basis, incorporating should be considered.
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Re: Business entities for studio work

Post by MoreSpaceEcho » Fri Sep 17, 2021 7:35 am

Sole prop here. Regardless of which way you go, don't do your own taxes, get an accountant. They're worth it just for the time/trouble they'll save you, never mind the money. And you can write off their fee.

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Re: Business entities for studio work

Post by drumsound » Fri Sep 17, 2021 8:30 am

MoreSpaceEcho wrote:
Fri Sep 17, 2021 7:35 am
Sole prop here. Regardless of which way you go, don't do your own taxes, get an accountant. They're worth it just for the time/trouble they'll save you, never mind the money. And you can write off their fee.
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Re: Business entities for studio work

Post by Scodiddly » Fri Sep 17, 2021 5:39 pm

Sole proprietor for me so far. Because I'm not a service business with customers coming in it's pretty low-risk. Also I don't sell anything that runs off mains voltage, just 9v batteries or phantom power.

I also use a better-than-Block tax preparer, it's been the same guy for many years. Probably $400/year, for my little bedroom-corner business which is mostly selling gizmos I build. I've got a bit of a system to generate the data the tax guy needs, some custom spreadsheets and such.

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Re: Business entities for studio work

Post by MoreSpaceEcho » Sat Sep 18, 2021 7:30 am

Same here. I've had the same guy for 11 years. It probably takes him all of 20 minutes to do my taxes, it'd take me hours and hours. Many unfun hours.

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Re: Business entities for studio work

Post by The Scum » Sat Sep 18, 2021 10:23 am

I'll agree with the above.

A trustworthy accountant is probably more important than the specific structure of your business (at least for an audio business with a single owner that you intend to keep - very different if you're starting a tech company that you want to push to IPO...)

A knowledgable accountant will also be able to advise on the advantages of those structures - they'll have an idea of your finances, and will know some of the jurisdictional specifics. They can also help you set up bookkeeping that will integrate smoothly into their processes. Keeping good track of business finances is probably more important that the structure...track the expenses & find the deductions!

I'm an S-corp LLC in Colorado...and in Colorado, S-corp profit/loss is notated on a form K1, then passed through to me as an individual, so the taxes aren't that complicated. I think it cost about $50 for the initial creating filing (I did the filing paperwork & operating agreement myself, I'm my own registered agent, etc), and $10 annually to renew, and the K1 is maybe $50 to prepare with my current guy (who helped me set up the spreadsheets I use to generate data for him). And all of these costs are operating expenses of the LLC, so not taxable.

If you're reselling goods (as many studios used to do with tape), an LLC can be a bit easier way to get a tax ID, and avoid the pass-thru on sales tax. Taxation on services is also varies jurisdictionally.

Nolo publish several books on picking a business structure, and setting up an LLC.

Whether this really shields me against liability depends on just how aggressive the other side's lawyers want to be.
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Re: Business entities for studio work

Post by Scodiddly » Sat Sep 18, 2021 2:12 pm

The Scum wrote:
Sat Sep 18, 2021 10:23 am
If you're reselling goods (as many studios used to do with tape), an LLC can be a bit easier way to get a tax ID, and avoid the pass-thru on sales tax. Taxation on services is also varies jurisdictionally.
I should add that I do have an Illinois sales & use tax registration, so that I can charge sales tax when I sell to somebody who is also in Illinois. Initially I had to file quarterly, but after a couple of years of my piddly little transactions the state changed me to annual. I do all that stuff myself, once again with the aid of a couple of spreadsheets that do the heavy lifting. Some of the cells have comments like "page 2 line 5" so I know where everything goes.

So that raises another *interesting* thing about being a business, and that is inventory. I have a sales/use tax number that allows me to buy stuff without sales tax once I've set that up with a vendor, but then I'm responsible for paying use tax on what I personally use, and sales tax on what I sell within the state (or I guess any state where I have a "business presence"). So I have to keep a pretty good handle of my inventory, which for an electronics geek means hundreds of SKU's of thousands of tiny cheap parts. That's a spreadsheet once again, and I have to be careful to keep it up to date. The benefit of that tedious work is that I know almost exactly what I own, and since I set that up I've almost never accidentally bought something that I already had in stock. Back in the 90's when I was a software developer, I was in the warehouse inventory field. We'd sell inventory systems that cost tens of thousands of dollars, but by increasing inventory accuracy from 80-90% (no kidding!) to 99.9+ the system would usually pay for itself in less than a year.

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