Meaning of a Loan Out Company
A Loan Out Company turns short-run employment arrangements into independent contractor relationships. Individuals with unique skills will have the benefit of tax reduction and asset protection by setting up a company to sell their personal services. Some examples - musicians, Hollywood actors and writers who contract with film production firms or concert venues. Alternative examples are newer “gig economy” type of employees who sell their services through Uber or Airbnb type channels where services are loaned out to third parties obtained through a mobile app. As an example, a registered nurse who uses an eldercare site to search out patients for her eldercare service may form a Loan Out Company to contract with patients directly.
How can a Loan Out Company structured?
The structure of a Loan Out Company can be a single-owner LLC that elects to be taxed as an S-Corporation. The Loan Out Company is actually a mediator between an individual with talent and the third party wanting personal services of that individual. A Loan Out Company is not a different type of entity, it is just a way to define a single owner company whose purpose is to improve asset protection and give tax benefits to an individual employed through short-run engagements.
Advantages of a Loan Out Company
Forming a Loan Out Company can be a good idea for people who earn $100,000 or more each year through a series of short-run engagements. It is solely at that level of income that the tax savings more than pay for the administrative costs of the LLC. A Loan Out Company can reduce an effective tax rate of the entertainer, mostly because a part of the actor’s income can be exempted from self-employment tax.
A Loan Out Company also affords the entertainer a greater degree of asset protection from contract liability than being a worker or sole proprietor. To get more protection against personal injury liability, insurance can be obtained by the Loan Out Company. The entertainer’s personal wealth should be kept separate from the Loan Out Company. A separate checking bank account should be opened for the income and expenses of the Loan Out Company. Contracts must be entered into the name of the company with the manager signing in the signature block. A single contract must be kept between the Loan Out Company and its owner for the owner’s personal services in case of a lawsuit, audit or questions by a production company.
If anyone is interested in defining the amount of savings must look for the assistance of a tax advisor. The tax advisor may advise the Company also consider a C-Corporation tax election, which may achieve a lower tax result on the basis of recent tax law changes. If applicable, creative people must make sure that their Loan Out Company does not result in the transfer of copyrights for creative works. This arrangement is not an alternative to long-run employment for ordinary employees, those in the gig economy.