Although many people in the entertainment industry have formed or converted their loan-outs to S corporations, the Tax Cuts and Jobs Act of 2017 (TCJA) changed some of the tax rules that affect these corporations (and their owners!).
Let’s see how these changes affect the choice of what entity to use when forming a loan-out corporation:
● Using an S corporation (S corp) loan-out may cost you most of your deductions.
S corps are required (and have been for many years) to pass out employee business expenses to their shareholders, and not to deduct such expenses at the corporate level. That means that expenses such as the fees for agents, managers, lawyers, and business managers are not deductible by the corporation. Instead these fees are supposed to be only deductible by you, the shareholder, on your individual return, as miscellaneous itemized deductions on your Schedule A. But, under the TCJA changes, miscellaneous itemized deductions are no longer deductible (at all!). In other words, you will now be taxed on all your income and get none of your deductions.