starting a business

[jelloshotsrule]

well, sort of.

my brother and i want to start a video/graphics/design company

first, some background.

i have a full time job, as does my brother. i studied film/animation/graphics and am looking for a career in it, though i don't expect to be a freelancer exclusively any time soon (need experience). he has always had a love for creative stuff, whether it be audio, video, web, silk screening t shirts, etc...

we recently purchased a prosumer video camera (hvx200) and both have g5s, final cut studio, etc, which we mostly use for personal projects for fun, though we do both occasionally do a freelance gig of all sorts

i've been looking to start a company officially, moreso as a way to sell my services (jokes abound there) formally, and eventually i'd love to do freelance/have my own production company.. my brother posed the question of whether we could form a company and thus benefit tax-wise when it comes to making purchases on gear... we would be laying out money in the near term, and ideally transferring what we already own to the company, legally. i doubt we would make profit, but there would definitely be some income over time (i have a web design freelance job currently, too late to get it for the company name though)

even after discussing with a couple tax law folks and accountants, i am not clear on how this would work... so, especially for those of you who have business(es) that are not your only/main source of income (gary?), in real world terms, how do you benefit financially from having a company that has "losses" in terms of gear purchases...?


i have heard the hobby vs. business stuff, and i think we're legit. while some of our uses would be hobby (making films for festivals, etc), we would also be able to bring in some money, even if it's only a couple grand a year..

any thoughts/experiences would be awesome.

 

[iGary]

I run all my eqiupment purchases through the business (LLC) with business money, and I get an assessment from the county every year. The gear is amortized over so many years, so I have to pay personal property taxes on it each year, but to a lesser extent as it depreciates.

If I buy gear or whatever for the company with personal funds, I claim it as an unreimbursed business expense on my personal taxes, so its a one-time hit.

I have an LLC book that I am done with if you would like it - just PM me.

Did I make any sense?

 

[~Shard~]

That sounds great, good for you guys. Although I cannOt comment on the specific questions you've asked, (as you've indicated, members such as iGary would be in a better position to answer them), one thing I cannot stress enough is write a sound, comprehensive business plan. For many people it seems like a lot of unnecessary work, but trust me, I've dealt with many companies before, smaller startups like yours and established companies too, and if a solid business plan is not developed, put in place, and executed upon, the business will fail more times than not - or at least not succeed as well as it could. It is a really great tool to have, and adds legitimacy to your company, especially if you are looking at going to the banks for loans, etc.

Ironically, many people overlook or neglect the business aspects of running their own business, so that's why I wanted to mention it.

 

[jelloshotsrule]

shard- i hear ya, though i will say that the business side will probably be mostly mine (hopefully) in terms of actually getting freelance work. the hobby aspect is where my brother, and the financing!, come in.. hah.. basically- there isn't a huge plan for the business at this point (won't become either of our first incomes). i'm guessing at some point down the line he'll drop out or i'll have another company or something if i can actually pull of the production thing on my own (talking probably 10+ years away)

Did I make any sense?

uh, some not because of your explanation, just cause i'm a complete fool when it comes to this stuff.

do you have a business bank account? the thing with us is that we would still be keeping our work separate. in other words, if i get a gig, i'll take the pay. and paying for our own gear separately. essentially, we want a formal front end so we can save some money on taxes. haha. certainly not cheating, but to utilize what options are there (where's matthew lesko???)

you claim your gear as property for taxing? do you have to? i don't even know where to do that...

i guess what i want to know is, in addition to the steps we'll have to go through (incorporating, trademarking names, getting tax id info, etc), is basically: is there any real benefit financially (taxes) to either/both of us if we are making the purchases for a business, rather than personally...?

i'm really sorry i'm so dense, and do appreciate your patience and time!

 

[iGary]

So do you have a business bank account? the thing with us is that we would still be keeping our work separate. in other words, if i get a gig, i'll take the pay. and paying for our own gear separately. essentially, we want a formal front end so we can save some money on taxes. haha. certainly not cheating, but to utilize what options are there (where's matthew lesko???)

Yes, I have a business checking account that all the money goes through. When I get paid on a job, the money goes in there, if I feel like "investing" my own money, it goes in there, and anything business related (health insurance, office supplies, software, gear, insurance computer stuff etc.) gets purchased on thet Visa checking CC. When I need to "pay" myself, I take a draw and put that into my regular personal checking account. I end up paying estimated taxes on that each quarter.

If you want to do things separately, then maybe you just want to do a sole proprietrship (you basically just make up a company name, your brothe rmakes up a company name and you each do your own thing). That way when you do your taxes, you just report what you spent on business expenses, and that reduces your total tax liability, too. So basically you make up a company name, just do your business like you are running a lemonade stand, and just keep track of all your personal expenditures for the business.

The only real reason to do an LLC is to reduce your liability. For example, if someone sues you and you're just a sole proprietor, they can go after all of your personal assets. Ifyou have an LLC, they are LIMITED in that they can only go after the company, not you personally, in most cases.

So if you want to do it for tax purposes, just keep track of what you spend on the business and what you take in, and they you can just claim that all on your regular taxes. Just remember if you do a job for a company and they sue you, its all on you. I'd also recommend getting some liability and equipment insurance - its cheap. Like $450 a year for all my gear and $1.5 milliion in liability.

you claim your gear as property for taxing? do you have to? i don't even know where to do that...

No, you do not have to. You either amortize it over a few years, or you pay for it with your personal funds, deduct it as an unreimbursed business expense on your personal taxes and go from there. The advatntage of doing it with business funds is it's "kind of" tax free.

You don't even have to trademark anything if you don't want to...or get incorporated etc...until you get bigger. Long story short, you don't have to do anything except go out and get jobs and be careful to keep records of all your purchases, car mileage, etc.

 

[jelloshotsrule]

thanks for all that gary.

re: trademarks - do you have trademarks (or some other copyright) on your company name(s)? if so, did you do it on a statewide thing or nationally? the name i have in mind is certainly unique, but not as unique as your own name...

re: going it alone - in a way i think that's the way to go, as i fear that down the road (when my brother and i don't live together, and i theoretically live off the business) it might get complicated. would it be possible to both go it alone, and yet still have the llc protections? ie, could we both form our own llc's for protection/tax purposes? or would that negate the benefit of going it alone (keeping it simple).

re: insurance- yeah, that is definitely in the plan. i have usaa insurance too, so it should be pretty cheap.

re: property and taxes- hmm, i guess i am confused as to what all the numbers affect. i understand (mostly) the idea of amortizing over x years for various gear, but i don't necessarily understand the exact way that that affects me. is it basically that i can claim x dollars in expenses, and therefore pay tax as if i made x dollars less in that year? i assume it's different if i claim personally than if i have an llc and claim that way? an example with numbers would do wonders for me, i think...

re: not bothering with TM and LLC- yeah, i've thought that that might be the way to go for now too, but then there's no tax benefits at all right? or can you actually write stuff off as business expenses still?


and again, thanks! the time and help is much appreciated..

 

[OnceUGoMac]

All I can say is that you should buy the equipment as expenses, and ride that as long as you can. Also, and more importantly, if your business isn't profitable for three out of five years, it's no longer considered a business, but a hobby.

 

[Sesshi]

I would first go set up a business account and get jobs on your existing infrastructure before worrying in detail about all this gear-related stuff. Once you have money in the bank then you can talk to advisers about using it effectively for business. Decide whether you need the protection of an LLC (and the associated additional accountability on your part) and run with it.

 

[iGary]

thanks for all that gary.

Sure.

re: trademarks - do you have trademarks (or some other copyright) on your company name(s)? if so, did you do it on a statewide thing or nationally? the name i have in mind is certainly unique, but not as unique as your own name...

The only thing I have trademarked is iGary Communications. I just didn't want to get in trouble, or have some other Gary use my company name. A trademark attorney will charge about $600 bucks or less.

re: going it alone - in a way i think that's the way to go, as i fear that down the road (when my brother and i don't live together, and i theoretically live off the business) it might get complicated. would it be possible to both go it alone, and yet still have the llc protections? ie, could we both form our own llc's for protection/tax purposes? or would that negate the benefit of going it alone (keeping it simple).

Yes, you could both form your own LLC's, but you have to file every year with the state and give them $300 for the privelege. I think the sole proprietorship is the best way to go. Just be really careful, make sure you get contracts for everything you do/sell, and be of the mindset that any of your customers can/would gladly sue you rather than pay you, sometimes.

re: property and taxes- hmm, i guess i am confused as to what all the numbers affect. i understand (mostly) the idea of amortizing over x years for various gear, but i don't necessarily understand the exact way that that affects me. is it basically that i can claim x dollars in expenses, and therefore pay tax as if i made x dollars less in that year? i assume it's different if i claim personally than if i have an llc and claim that way? an example with numbers would do wonders for me, i think...

The main advantage of running it through the business is that you get to spend the money (on the business) before you pay any taxes on it. Joe Bloe Company pays you $5,000 dollars to shoot a HR film for them, you do - it get paid, and then dump the money into your business account. You can spend that money on business expenses, advertising, whatever...all before you have paid a dime in tax on it. The only money you pay taxes on is the bottom line (what's left over) at the end of each quarter.

If you use personal funds, you have already paid taxes on it and it greatly reduces your purchasing power. Admitted, you have to pay taxes one way or another, but wih an LLC, you get to extend it out, and still have the purchasing power of all your money right from the get go. What you have to do is weigh the cost of forming an LLC, maintaining good paperwork (I use QuickBooks Mac), and paying the $300 yearly fee with the other benefits.

re: not bothering with TM and LLC- yeah, i've thought that that might be the way to go for now too, but then there's no tax benefits at all right? or can you actually write stuff off as business expenses still?

Yes, you write them off as unreimbursed business expenses on your personal return. Say you decide to start your own company "Jelloshots Video" or whatever, right? You go out and buy a video camera with your own money that you earned at your full time job. You buy a computer and use it exclusivley (LOL) for business purposes, software etc. You keep track of all your mileage that you accumulate for business purposes, you deduct part of the portion of your house you use as a home office..that all just reduces your earnings for the year and reduces your tax liability - but you have to pay taxes on it first.

 

[jelloshotsrule]

The only thing I have trademarked is iGary Communications. I just didn't want to get in trouble, or have some other Gary use my company name. A trademark attorney will charge about $600 bucks or less.

can't i just do it myself and pay the fee? i think the federal trademark is like 100 bucks, from what i remember finding... hmmm

Yes, you could both form your own LLC's, but you have to file every year with the state and give them $300 for the privelege. I think the sole proprietorship is the best way to go. Just be really careful, make sure you get contracts for everything you do/sell, and be of the mindset that any of your customers can/would gladly sue you rather than pay you, sometimes.

that seems like the case. i figure as long as i play it safe and get contracts that make sense, etc, we should be pretty safe (my girlfriend and brother are both lawyers, so that helps...)

The main advantage of running it through the business is that you get to spend the money (on the business) before you pay any taxes on it. Joe Bloe Company pays you $5,000 dollars to shoot a HR film for them, you do - it get paid, and then dump the money into your business account. You can spend that money on business expenses, advertising, whatever...all before you have paid a dime in tax on it. The only money you pay taxes on is the bottom line (what's left over) at the end of each quarter.

this raises a couple questions for me...

1. i am doing a freelance gig right now where i doubt they will take taxes out ahead of time, but i really dont' want to owe the gov't a big chunk of $ when tax season rolls around... how do i figure out how much to pay em, and how do i go about doing it? sort of a tangent...

2. so you basically have company $, and consider your income to be whatever amount you decide to take away from the company after its expenses? do you cut yourself a check? or how do you keep record of that transaction (from business account -> personal)?

If you use personal funds, you have already paid taxes on it and it greatly reduces your purchasing power. Admitted, you have to pay taxes one way or another, but wih an LLC, you get to extend it out, and still have the purchasing power of all your money right from the get go. What you have to do is weigh the cost of forming an LLC, maintaining good paperwork (I use QuickBooks Mac), and paying the $300 yearly fee with the other benefits.

Yes, you write them off as unreimbursed business expenses on your personal return. Say you decide to start your own company "Jelloshots Video" or whatever, right? You go out and buy a video camera with your own money that you earned at your full time job. You buy a computer and use it exclusivley (LOL) for business purposes, software etc. You keep track of all your mileage that you accumulate for business purposes, you deduct part of the portion of your house you use as a home office..that all just reduces your earnings for the year and reduces your tax liability - but you have to pay taxes on it first.

just to clarify... if i went the sole proprietor route, would i still have to set that up legally? with the state? feds? both?

so in the go it alone example, you say "you pay taxes on it first"... what do you mean exactly? just that i pay taxes on my income, then claim the deductions at tax time, and thus would get a bigger return, as opposed to having smaller income and not getting as big a return?

if you were charging me $ as a tax lawyer, you'd be set... oh, i shouldn't have said that out loud. hah

thanks again.

i probably should just get on ichat with you or something. hah

 

[WildCowboy]

can't i just do it myself and pay the fee? i think the federal trademark is like 100 bucks, from what i remember finding... hmmm

That one I can answer...trademark application fees range from $275-$375 depending on whether you file on paper or electronically and on whether you meet certain criteria for a simplified application.

 

[jelloshotsrule]

That one I can answer...trademark application fees range from $275-$375 depending on whether you file on paper or electronically and on whether you meet certain criteria for a simplified application.

where the **** did i get $100? me dumb

 

[WildCowboy]

where the **** did i get $100?

Wishful thinking, perhaps?

 

[jelloshotsrule]

Wishful thinking, perhaps?

a 2 second search came back with $275 for the simplified one, or $325... i'm dumb.

on that note, at this point i have a name, but not a logo or anything... should i wait to file for TM til i have both? or...? or am i asking the wrong person? hah

 

[iGary]

can't i just do it myself and pay the fee? i think the federal trademark is like 100 bucks, from what i remember finding... hmmm

Yeah, but you take the risk of not doing it correctly and having something that gets challenged later. I just didn't want to mess with it.

that seems like the case. i figure as long as i play it safe and get contracts that make sense, etc, we should be pretty safe (my girlfriend and brother are both lawyers, so that helps...)

There's a great book "Legal Forms for Photographers" that could probably be adapted to your business. I modify their forms and have only had to take one client to court to get paid, and the contract saved me.

1. i am doing a freelance gig right now where i doubt they will take taxes out ahead of time, but i really dont' want to owe the gov't a big chunk of $ when tax season rolls around... how do i figure out how much to pay em, and how do i go about doing it? sort of a tangent...

Here you go.

2. so you basically have company $, and consider your income to be whatever amount you decide to take away from the company after its expenses? do you cut yourself a check? or how do you keep record of that transaction (from business account -> personal)?

Basically there are two times a month when I need money and bills are due. I transfer whatever I think I will need every two weeks from my business account to pay my bills and feed myself (lets say I need $1,000 as a fictitious number). So I transfer $1,000 to my personal checking account, and then transfer $250.00 into another account I have set up to pay taxes with. I use QuickBooks to track all that - it gets logged as a "Partner Draw." I don't bother with whatever is left over at the end of the month in the business account - only what I take out in draws. Seems to work for me.

just to clarify... if i went the sole proprietor route, would i still have to set that up legally? with the state? feds? both?

Nope, you're just putting your lemonade stand up in your front yard. Only time you even tell the Feds about it is when you file your personal taxes.

so in the go it alone example, you say "you pay taxes on it first"... what do you mean exactly? just that i pay taxes on my income, then claim the deductions at tax time, and thus would get a bigger return, as opposed to having smaller income and not getting as big a return?

What I mean is, with most regular jobs, you have all your deductions taken out before you get your money, so you start out with less. Then, if you go and buy equipment with that "already taxed" money, you have less to spend, but you can also deduct it as a personal business expense. With a business, you get the use of the money before Unlce Sam gets his filthy effing hands on it, and then you can write the equipment off each year at an amortized rate. With personal income, its a one-time deduction.

I'l PM you my AIM handle if you have more questions.

 

[Transic]

*

 

[jelloshotsrule]

We'd love transcripts! I'd assume many poeople on this board would value more of this info, me included.

i'll let gary provide the transcripts. suffice it to say, there will be a lot of *s to read through.

nah, basically it seems like i should do personal tax deductions for the time being, and if i get more clients and/or am going to be buying lots of gear, then i should get an LLC going for amortized tax deductions and liability protection.

if that makes sense (it doesn't to me!)

 

[~Shard~]

shard- i hear ya, though i will say that the business side will probably be mostly mine (hopefully) in terms of actually getting freelance work. the hobby aspect is where my brother, and the financing!, come in.. hah.. basically- there isn't a huge plan for the business at this point (won't become either of our first incomes). i'm guessing at some point down the line he'll drop out or i'll have another company or something if i can actually pull of the production thing on my own (talking probably 10+ years away)

Totally understand - just wanted to share that tidbit for what it's worth.

 

[jelloshotsrule]

Totally understand - just wanted to share that tidbit for what it's worth.

it's cool. the advice is much appreciated. you bastard.

 

[~Shard~]

it's cool. the advice is much appreciated. you bastard.

No problem. And thanks for the compliment.