because they are filming on location , they can deduct travel costs as business expenses . Thus , the worker will have more control over what business expenses are paid by the corporation vs . what another employer might pay for business expenses . The worker will have more options on what type of retirement plan the loan-out corporation may set up than what they may be entitled to , if any , as an employee of many different business entities .

After these costs are paid there are less funds available to pay the worker a salary , thus less paid for various taxes , such as Social Security , Medicare and California Disability Insurance .

If the worker was a direct employee of entity needing their services , then some of these “ business expenses ” would either be limited on their individual tax returns or entirely not allowed .

Loan-out corporations also provide a certain degree of liability protection . If something goes wrong with a client and they want to file a lawsuit , the corporation might be liable , but the worker is not .

Loan-out Corporation Disadvantages Loan-out corporations come with certain downsides that should be considered before deciding to set one up .

First , they can be expensive to establish and maintain . Simply creating a corporation requires legal work and various annual fees . The corporation should also have its own assets , like business accounts for accepting payment and distributing salaries .

To ensure the loan-out corporation is being managed and run correctly the corporation may need regular services of legal and financial advisers .

While the individual behind a loan-out corporation may enjoy certain tax breaks and benefits , there are other tax implications for the corporation itself . For example , the

corporation might be liable for corporate income taxes , Social Security and Medicare taxes .

Because gross compensation paid to the worker will be lower than when working directly with the hiring business , the potential Social Security benefits will be lower at the time of retirement .

In September , California Gov . Gavin Newsom signed into law SB 422 that stated loan-out corps are declared the employer of IC . The also bill states this “ is declaratory of , and not a change in , existing law .”

To read the text of the bill , visit https :// leginfo . legislature . ca . gov and search “ SB 422 .”

James C . Counts , II , CPA , CTFA is owner of James C . Counts , II , CPA , CTFA and a member of the CalCPA Committee on Taxation . You can reach him at james @ countscpa . com .

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