This is the second section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the tax benefits of incorporation to the entertainer.
“In general, the tax benefits available to loan-out corporations compare favorably with those available to individuals under their two unincorporated alternatives:
- providing services as a direct employee of the unrelated party consuming the services
- providing services as a sole proprietor
“(La France, 1995)
The concepts employed to determine a corporation’s tax liability are the same broad principles of gross income, deductions, assignment of income, timing, and characterization of the income employed by the individual taxpayer. Taxable income is gross income less certain authorized deductions. Gross income is all income from whatever source derived. Internal Revenue Code § 61 provides a non-exclusive list of sources of income which qualify as gross income under that section, including compensation for services, gains derived from dealings in property interest, and dividends.
From gross income, deductions are made if specifically allowed by the Internal Revenue Code as properly deductible. Such deductions include those ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, deductions on interest paid during the taxable year and ordinary and necessary expenses paid or incurred during the taxable year for the production of income.
* For specific inquiries regarding a tax planning legal matter that you may have, you are welcome to visit our Los Angeles Tax Planning Attorney services page.
- How Tax Laws Impact a Sole Proprietorship Business (thinkup.waldenu.edu)
- Income Tax Filing Requirements (turbotax.intuit.com)