B Y

Th e B u s i n es s

R O B E R T P.

GUSTAFSON

The Tax Man Cometh

Whats the fastest way to ruin that high you got from selling your spec script? How about running out of money when it comes time to pay the man. ongratulations! You nally hit pay
percent, Beem says its always good to have a little extra savings. One thing to keep in mind is that the government likes to get paid throughout the year like you do. So even though taxes are due April 15th, when you do get paid in lump sums throughout the year, you have to pay estimated quarterly taxes. ese are due March 31st, May 30th, September 30th and December 31st. that spec script you had $30,000 worth of expenses. is means that instead of paying taxes on $100,000, youre only taxed on $70,000. In that example alone, if you were ling as a single person, you would pay over $10,000 less in taxes. So remember, almost anything in your immediate world that has to do with your writing can be deducted. For example: Research. You can deduct any movie you go to, your cable, or a screenwriting book you buy. Save those stubs. Equipment. Your computer, software, paper, pens, or any other oce supply can be deducted. Sometimes even your phone and DSL. Transportation. Parking for a meeting or local transportation can be deducted and,

dirt! You sold your rst spec script. You bought the car, the house, the toys, maybe paid o your debt, then comes the 1099 in the mail. Oh, crap. If you received some good advice, youve planned ahead and put away some of that money for taxes. Most scriptwriters prefer to get paid in one lump sum for their writing, as if theyre charging a at fee, and the life of a writer can be feast or famine. is means you have to make that money last and, based on your planning, April 15th can make life come to a screeching halt.

DeductionsSave Your Receipts

As a writer, you can write o almost all of your expenses, so save your receipts. e point of writing o, or claiming deductions, is to reduce your taxable income. Maybe you made $100,000 on your spec script, but in writing

Learn to Think Like the IRS

You hear a lot of people upset about having to pay taxes, so I have to remind them that theyre paying taxes because they made money, and thats a good thing, says Tyson Beem, a CPA and business manager at one of the largest rms to cater to the entertainment community, Gelfand, Rennert & Feldman LLP . Beem manages writers, producers and actors. He explains that in Hollywood, where your craft is your life, everyones tax situation is pretty much the same. e key is to think like the IRS, he says. e IRS wants to tax you on every bit of income you make. First, theyll get a copy of what you make from your employer(s). en, when you le your own taxes, the IRS uses your social security number to match your stated income with the 1099s they got from your employer(s). ey check for any discrepancies, take a look at your deductions, and deposit your check. at seems simple enough, right? I like to tell my clients to put away at least 40 percent of whatever their fee is in a money market account, Beem advises. Even though the federal tax and state tax on, say, a $100,000 check only comes to around 37

98

Script magazine

WWW.SCRIPTMAG.COM

Dont give a gift just for the deduction. Cash is still king.
although your commute to work is NOT deductible, a portion of your driving can be. If you are a script consultant, for example, and have to drive to an appointment, that trip can be deducted. To gure out how much you can deduct, you would gure out what percentage of your driving is for work. If 20 percent of the miles you drove this year were for work, then you can deduct 20 percent of the total amount you spend on gas, repairs, maintenance, insurance or on your lease. Meals and Entertainment. Fifty percent of business meals and entertainment are deductible. So if you sell an autobiographical script, this could mean every meal. Gifts. Twenty-ve dollars per gift is deductible. So you can write o the bottle of Dom that you gave your agent for helping you sell your script, but only $25 of it. And speaking of your agent ... Commission to your agent or manager is deductible. But dont give a gift just for the deduction, reminds Beem. Cash is still king. e deduction is just a bonus. Groceries and clothing are NOT deductible. If you were a nurse and needed to buy scrubs for work, they would be, but most writers write in jeans, pajamas ... or less. And your oce is not a lm set, so no getting away with deducting your peanut butter and jelly sandwiches as craft services. Be very careful if youre deducting part of your rent as a home oce. Although you can, it is a very scrutinized area and can raise red ags, and being audited is the last thing you want. In order to deduct a part of your rent, youd have to set up an oce in a spare room (not in a spare bedroom) and only use it for writing. So if youre checking Myspace or your fantasy football team on that computer in the home oce, rent cannot be deducted. is list of deductions is meant as an example, but you can see how a writer could easily come up with $30,000 worth of deductions. If you have any questions about what can and cannot be deducted, please consult an entertainment tax accountant. total income of $70,000. Here are the estimates of total taxes if you were to 1) take your income as a Fee, 2) as an S Corp, and 3) as a Wage.
Fee: Total Taxes (Fed and CA): $24,118 Remaining Cash after expenses and taxes: $45,882 S Corp: Total Taxes (Fed, CA and Payroll): $19,906 Remaining Cash after expenses and taxes: $47,594 Wage: Total Taxes (Fed, CA and Payroll): $29,426 Remaining Cash after expenses and taxes: $40,574

To Incorporate or Not to Incorporate

Many writers will choose to start their own business and get paid through that company for a few reasons. Firstly, a business gets taxed at a much lower rate than an individual, and also, with a business comes liability protection. Beem suggests incorporating if youre making a steady income from your writing and making over $150,000 a year. e steady income could be because you are staed on a TV show, or perhaps you will be expecting residuals from a past script. Often, a writer may get a certain amount up front for his script with an even larger amount promised if the movie actually gets made. In that case, it may be wise to incorporate. Just be ready to pay a few thousand dollars in initial fees and fees to the paralegal or attorney whos helping you get your state and federal ID number. Also, organizational minutes have to be maintained, and a minimum tax of $800 per year is assessed no matter how much the company makes. It is not a simple task, but may be worth it depending on your situation. Once again, contact an entertainment tax accountant for more information and advice.

The Tax Man Cometh

In the following analysis from Beem, we assume you are single with no dependents, live in California, and just made $100,000 gross on a sale of a spec script. We are also going to assume that you can come up with $30,000 worth of expenses. is leaves you with a net

As you can see, the S Corp seems the best way to go, but requires more attention and more fees as you need someone to incorporate the business for you and an accountant to le the tax return and do the tax planning. ose costs will cut into the remaining cash. e Fee structure is the middle of the road as far as tax ling and planning because it requires less attention than incorporating but more attention than a simple wage. e Wage seems the least favorable way to go as you pay more taxes and have less cash at the end of the day, but it requires the least amount of work. With a little direction and advice, you can fund your writing dreams for a long time. You may have messed up the rst time around, but now that you know how the IRS thinks and how much you can deduct, April 15th wont seem so bad. So many people are intimidated by taxes because they dont understand them, says Beem, but just learning a little about them can really help you in the long run.

M A R C H

A P R I L

2 0 0 7

Script magazine

99