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Thread: Dancers becoming Incorporated?

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    Senior Member tinygirl's Avatar
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    Default Dancers becoming Incorporated?

    The other night I overheard a girl talking about how she had become Incorporated to help with her taxes. The example given was that she as a company made $40,000 in a year and issues herself a W-2 form as an employee making $20,000. I hadn't heard of this before. Does anyone know advantages/disadvantages to this?

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    Banned Melonie's Avatar
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    Default Re: Dancers becoming Incorporated?

    advantages are that your 'corporation' can decide to pay for certain niceties for corporate employees (i.e. yourself) ... things like health insurance coverage, biz class air fare, a company vehicle etc. ... with pre-tax money. Standard corporations also usually pay a lower tax rate for the same amount of 'income' than sole proprietor (unincorporated) businesses or subchapter S corporations.

    disadvantages primarily involve paperwork. Having a standard corporation means holding official meetings, keeping official corporate books as well as personal books, filing a corporate tax return as well as a personal tax return etc. IMHO the decision to incorporate boils down to whether or not you are likely to earn serious six figure annual income for a reasonably long period of time to make the extra costs and effort involved in establishing and maintaining a standard corporation worthwhile.

    With a $40,000 annual income, your incorporated friend is more than likely paying out more in legal and accounting fees than she is saving on taxes. The only reason that comes to mind for a person to choose to incorporate at a $40,000 income level and pay herself $20,000 is to maintain eligibility for things like welfare, food stamps, utility subsidies etc. by only showing the social services people her employee paychecks. However, this has the potential to turn nasty if social services or the IRS ever audits her such that social services discovers she is the major stockholder in a corporation and she did not list this stock as an asset when applying for benefits !

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    Veteran Member stant's Avatar
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    Default Re: Dancers becoming Incorporated?

    I agree with everything Melonie said here but would add that the preferred business entity for this sort of thing is now a limited liability company, or LLC, rather than a corporation. LLC's require far less paperwork to maintain their status than a corporation.

    I'd also add that your friend's description of income reporting is only accurate if she is talking about a C Corporation and not an S Corp. For a C Corp, corporation profits are retained and taxed at the corp rate. For S Corps, all profits flow through the corp to the shareholders, and are reported on schedule K. C corps (with single shareholders) also face certain double taxation issues when the profits are passed onto the shareholders as dividends. Expect seriously high accounting bills for C corps, less for S corps, and the least for an LLC.

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    Member Jon_CPA's Avatar
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    Default Re: Dancers becoming Incorporated?

    BEFORE INCORPORATE AS A C-CORP!!!



    It is often mistakenly believed that c-corporations have better tax brackets, that is not always the case:



    Tax BracketC-Corp Single Head of Households

    • 10% Bracket N/A $0-$7,150 $0-$10,000
    • 15% Bracket $0-$50,000 $7,150-$29,050 $10,000-$38,9000
    • 25% Bracket $50,000-$75,000 $29,050-$70,350 $38,900-$100,500
    • 28% Bracket N/A $70,350-$146,750 $100,500-$162,700
    • 33% Bracket N/A $146,750-$319,100 $162,700-$319,100
    • 34% Bracket $75,000-$100,000 N/A N/A
    • 35% Bracket N/A $319,100+ $319,100+
    • 39% Bracket $100,000-$335,000 N/A N/A
    • 34% Bracket $335k-$10m N/A N/A
    • 35% Bracket $10m-$15m N/A N/A
    • 38% Bracket $15m-$18.3m N/A N/A
    • 35% Bracket $18.3m+ N/A N/A


    The hidden kicker:

    The tax law has a special provision for certain C-Corps that is called a Personal Service Corporation (PSC). A PSC is a C-Corp in which, “personal services are performed by employee-owners. Employee-owners are those who own, directly or indirectly more than 10% of the outstanding stock of the corporation on any day during the company’s tax year” (IRC Sec. 269A). “Qualified personal service corporations perform services in the field of health, law, engineering, architecture, accounting, actuarial science, the performing arts, or consulting” (IRC Sec 11(b)(2)). The corporate graduated rates do not apply to personal service corporations. Such corporations are instead taxed at a flat rate of 35%.



    The purpose of incorporating is to protect one’s personal assets from litigation arising during the due course of business, or vice versa. Taxes should be considered when choosing the form of incorporation, not as the reason to incorporate.



    When considering incorporating, always consult with your legal and tax advisors.

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    Veteran Member stant's Avatar
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    Default Re: Dancers becoming Incorporated?

    Quote Originally Posted by Jon_CPA


    The purpose of incorporating is to protect one’s personal assets from litigation arising during the due course of business, or vice versa....
    Generally true, but don't expect the "shield" of a corporation or LLC to protect against the liability arising from personal intentional torts. For example, should a dancer intentionally kick a custy in the balls with a plastic stiletto...the dancer has personal liability. If the dancer "accidentally" kicks a custy in the balls during a particularly wild pole move (negligence claim), then a corp. or LLC could provide the desired asset protection (professional liability insurance should cover this as well).

    Self defense is of course always available as a valid defense against liability in the case of intentional battery with a plastic stiletto.

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    Default Re: Dancers becoming Incorporated?

    wow that shit is interesting
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