An artist loan-out company is a legal entity established by an artist for tax purposes and protection from liability. This type of company allows an artist to conduct their business affairs through a business entity which limits their personal liability. These are typically formed as a corporation, LLC, or partnership, and are owned or controlled by the artist. The company enters contracts with clients to provide the artist’s services. The loan-out company manages the artist’s finances and provides the artist with tax deductions and other benefits that would not be available to the artist as a sole proprietor.
What are the steps for opening and operating an artist loan-out company?
The process for opening and operating an artist loan out company differs based on the jurisdiction. However, the general steps stay the same. First, an artist must choose to form the loan-out company as either a corporation, an LLC, or a partnership. Then, the artist must register their business with the correct government agency. This involves filing articles of incorporation or organization and obtaining an Employer Identification Number (EIN) for taxes. The business should then open a separate bank account for the company to separate business finances from personal finances. Once the company is fully established, an artist can use the entity to begin entering into contracts for their services.
What are some of the tax benefits obtained from an artist loan-out company?
Loan-out companies provide several tax benefits to artists. Artists can get tax deductions for business expenses such as equipment, travel expenses, and office expenses by operating through a loan-out company. When an artist loan-out company distributes income to an artist, it is done in a manner that minimizes tax liability. A loan-out company can also set up a 401K plan or IRA plan for an artist creating tax-advantaged savings for their retirement. Any assets owned by an artist loan-out company can be taxed at a lower capital gains tax rate than ordinary income. Finally, a loan-out company can defer income from one tax year to another which helps the artist manage their tax liability and cash flow.
Does the artist loan-out company need to be for a single artist, or can it administer more than one?
An artist loan-out company can administer the business affairs if a single artist or multiple artists. The structure and operation of the company depends on the needs of the artists involved. When there are multiple artists, then the loan out company will be more complex so that each artist is properly and fairly represented. This can include structuring the entity with multiple managers or a board of directors with a representative for each artist.