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The Magic Cafe Forum Index » » Tricky business » » Incorporating your magic business (0 Likes) Printer Friendly Version

Dan Estep
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Rick Daniels Magic Zone
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U.S. performers: I am researching the possibility of incorporating my business when I get back to the U.S. I desire an umbrella of protection for my personal assets. Can anyone lend advice or put me in touch with someone who can in this area?
Brent Allan
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Chicago
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Talk to an accountant. They will be able to tell you what you legally can or cannot do, as well as what paperwork needs to be filed, etc. etc.
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Jim Snack
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Good advice from Brent—talk to an accountant.

On my accountant's advice I incorporated my business as a Subchapter "S" corporation ten years ago, and it has worked very well for me. When you are incorporated as a Subchapter S you can enjoy certain corporate advantages such as protecting personal assets without the double taxation of a "C" corporation.
Jim Snack

"Helping Magicians Succeed with Downloadable Resources"
www.success-in-magic.com
Ricky B
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Northern California
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I have to disagree with the advice given so far. Talk to a lawyer if you want legal advice! The accountant can be helpful for tax advice but should not be relied on for legal advice. Whether your assets can be protected is legal advice. And which entity to select also involves legal advice.

In general, a corporation works best in protecting you from legal liability if the liability is created by an employee or other owner. If the liability is created by you (heaven for fend!), you will still have personal liability. Of course, the corporation will also have liability but you don't care about that.

Example: You perform a magic act that involves fire. You negligently set fire to the venue and cause extensive damage. Whether or not you are incorporated, you are personally liable for the damage you caused.

If you are going to be the sole employee of your corporation, then insurance may be the best line of defense. I see it advertised in the Linking Ring, and it looks pretty cheap. You should consult with your insurance agent for advice on what other insurance you would need.

Being an S corporation will allow you to avoid the so-called double taxation of a C corporation, but a C corporation can be more advantageous at times (primarily because "fringe" benefits can be deductible for a C corporation but not for an S corporation). This is where a good accountant can really help you.

By the way, a corporation might not be the way to go for limited liability. In some cases, a limited liability company offers the same legal protection but offers pass-through tax treatment. Again, you need legal advice to choose the entity.

There will be a cost to incorporating. In California, after the first year, the state charges $800 per year minimum tax for the privilege of being incorporated.

It is generally best to incorporate in the state where you will be operating. If the corporation is going to be operating in several states, be aware that you may have to qualify to do business in each of those states, which means that the corporation must register with the secretary of state in each of those states and file corporate tax returns in each of those states.

In addition, you will have legal fees to form the corporation, and you will have increased accounting fees. A corporation must file a separate tax return, and that will be more expensive than simply attaching a Schedule C to your personal tax return.

Free legal advice that you get from stangers on the internet is worth double what you pay for it. (Have your accountant do the math on that one if you're confused.)

--Rick
Jim Snack
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Rick is correct in stating that you should get legal advice from a lawyer. Actually your team of business advisors should include both a lawyer and an accountant.

When first starting out using the sole proprietor form of doing business makes sense. It is simpler and you can track expenses and income just as Rick describes in the topic "Quicken and Quickbooks."

As your income increases it makes sense to change your form of doing business to either a corporation or an LLC, and you will need advice from a professional on which is best for you.

One advantage of doing business as a Subshapter "S" corporation rather than a sole proprietor is that a portion of your income can be taken as dividends instead of salary. This can save a great deal on Social Security taxes, which are applied to wages, not dividends. The savings should more than cover the additional accounting costs of preparing two returns.

Again, however, don't take my advice; consult your own legal and accounting business advisors.
Jim Snack

"Helping Magicians Succeed with Downloadable Resources"
www.success-in-magic.com
Dennis Michael
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Southern, NJ
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Incorporate yourself and make sure it is a subchapter "S" Corp. This way you can file with your home income tax and take advantage of business expenses on your yearly income tax forms.

Look at your state's yearly charge for corporations. In Del. I think it is about $100. In NJ, they raised it up to $600 a year. Because of this I dissolved two corporation. It will drive small business away from NJ.

There are some requirements but a lawyer or tax accountant is unnecessary. Go to an office supply house and check out the self incorporation software, forms, and books. It is a lot cheaper and really not that difficult.

If you do incorporate, get a good accountant, one in which you become friends so they don't charge you for every second you talk to them like many lawyers do.

By the way, I've had three corporations and now I just have one, because of NJ law.

Under no condition do a partnership corporation. This usually leads to many unforeseen problems. The details are long and partnerships fail at a much greater rate than your own corporation.

By the way, Rick (above) has some really good sound advice. Also dissolving a corporation cost money!
Dennis Michael
Dan Estep
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Rick Daniels Magic Zone
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So far I have received great response to my original question. I agree with most of what has been said. I will check with a lawyer and accountant on this matter (and insurance).

I have read Own Your Own Corporation by Garrett Sutton and it sheds much light on the subject. I will be setting up business in Hawaii and know there are many avenues there to solicit advice as well.

Thanks to all for the advice. Keep it coming.
yosef_dov
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Loyal user
NYC area
242 Posts

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Greetings...

My business in Florida was subchapter-S... When it went under, my losses passed through to personal income taxes, and I got BIG refunds for two years (losses completely offset income the first year, it was nice getting 10 grand back). Also, as my lease and other items were in the corporation name, I could bankrupt the corp. and was not only no longer liable, but the bankruptcy wouldn't appear on me personally (some of this gets tricky and would need a lawyer, for example getting a lease or merchant credit card status via corporation without having to sign a "personal liability" statement).

So incorporating can have benefits (besides the image in most people's minds that someone who runs a corporation MUST be a bigshot!)...but it can be very tricky and potentially dangerous (legally)...

Joe
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