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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 721
Experience:  Certified Public Accountant
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I was working for a company which was acquired and I got a

Customer Question

I was working for a company which was acquired and I got a bonus of $500k. This was paid into an LLC that I had created for my contracting services. I had very little expenses related to this. (Company A)
I invested this money into a new company which is working on a big project, paying employees and contractors. (Company B)
While I dont have many expenses in Company A - the money went straight into my new venture Company B - which I do have a lot of expenses in. Am I able to offset my tax exposure for the $500k bonus via Company B?
All suggestions welcome!
Submitted: 2 months ago.
Category: Tax
Expert:  Mark Taylor replied 2 months ago.

Hi, my name is Mark. I would be happy to help you with your questions. What type of entity is Company B? Did all of the money go towards paying employees and contractors? What is your ownership percentage in company B?

Customer: replied 2 months ago.

Hey Mark

Company B is an LLC - 100% owned by me

The project is a movie so most of the money goes towards paying camera people, editors, producers etc.

Expert:  Mark Taylor replied 2 months ago.

Hi Katy, by the way congrats on the bonus. IRC Section 181 allows you to deduct up to $15 million in production costs for movie production. So you would be able to expense this all on through the LLC (on Schedule C of the your tax return). This would offset the income generated from the bonus.

Expert:  Mark Taylor replied 2 months ago.

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Customer: replied 2 months ago.

Hey Mark - thanks for the answer - so just to 100% clarify - even though I got $500k into one company and had since I had minimal expenses in Company A I was told I would have to pay nearly 50% tax on this bonus...the fact that I have put it straight into Company B - where I am paying expenses - means I wont have to pay 50% tax on Company A?

Expert:  Mark Taylor replied 2 months ago.

On your tax return you will have two schedule C. The net income from the schedule C would be subject to Self-Employment Taxes. The self employment taxes are 15.3% of the earned income up to $118,500. If you have wages this would reduce the amount subject to 15.3%. Anything above this would have a Self Employment taxes of 2.9%. In addition you would pay also pay income tax on the taxable income. If you consider both the federal, state, and self employment taxes that is where the 50% if coming from.

Back to your example. Let's assume that the one Schedule C with the bonus has a net income of $500,000. Let's assume that you spent $300,000 on the production of the movie. These two amount would net to $200,000. You will still pay a fair amount of taxes. Probably in the 35% - 40% considering both federal and state taxes.