If you ever want to graduate beyond Schedule C, talk to a tax advisor about whether going S-Corp or LLC might be for you. The major benefit of that conversation for me was to put me in the frame of mind that my 1099 work is not a hobby – and therefore I can’t afford to paid like it is a hobby. It’s a complex leap to make, and as I say above, it’s not as cut and dry as the IRS would like to make it out to be – many artists live in that kind of subsistence Schedule C territory, and it’s not a comfortable place to be – and often that means it’s not a comfortable place to stay in for more than a few years.

That said, I think that the work that Schedule C’ers do and are trying to do is really valuable, and much more valuable than their compensation would indicate. So I hope this post at least clarifies some of the challenges you face when you’re in that window of more-than-hobby and less-than-incorporated-business, and allows you to stabilize so that you can move in the right direction for next year.

I realize this was written in 2009, as you mention, but you’ve edified me with regard to the Schedule C.

Thanks.

Jack

Ever since my first internship, theaters have been trying to sell me on how 1099 income is in my best interests and after many stressful tax years and near misses, I will agree with you: The way the theater industry (and it is EVERYONE) pays for its freelance consultants is not right. It’s a great deal for the theaters themselves because they don’t need to take out insurance or deal with payroll, but just like firecode violations, it’s also dangerously skirting the rules.

I’d also like to look at this problem from a practical standpoint. Seeing the calculus from the other side of things as a theatrical producer, as well, I can say that if theaters were always held to the standards of normal business practice, they would not be able to produce. There are many reasons aside from this one why theaters just don’t function under the acceoted standards of doing business in America – most of them wouldn’t even get past rent. But I’d argue that some of those contributions are worthwhile enough to be supported by the community one way or another, and what’s more, there’s no real mechanism other than 501c3 status that actually helps us as a community determine which non-profit organizations are valuable – so it’s help all or help none.

The current tax code system gives a certain level of support to non-profits as far as payroll goes, but theater non-profits historically don’t even have the business infrastructure to take advantage of free resources. This lack of business sense has been an internal struggle within the theatrical community and from what I can tell the only lasting change possible would come from creating a clearly navigable and different framework of payroll rules and incentives for arts organizations or even all non-profits, who all seem to have this problem in the current system: For instance, a law that required theaters to file W-2s for employees and take out workers comp insurance for all freelance employees that ALSO provided dirt-simple payroll consulting and infrastructure for theaters to do so, and incentives to insurance companies to provide affordable rates to non-profits.

I know theaters want to do what is best for their employees, but their priority is always going to be production. As we all know, in a theater you usually just get to the first few things on your list.