To be a great actor, you have to possess talent and have an uncanny knack for becoming other people the moment the camera starts rolling. Unfortunately, for many artists who spend day and night perfecting their craft, becoming a great money manager outside of work usually isn’t one of them.
Luckily, the industry is filled with all sorts of professionals (aka “people”) who can guide you through what it takes to file taxes (correctly), form an LLC and make moves that keep your financial house in order – so that it doesn’t crumble to the ground like a house of cards or even the series House of Cards.
In that regard, you can never have too much free financial advice.
Enter Jeff Bacon, Managing Director at Ground Control Business Management, who has seen a lot in his days as a CPA and business manager for actors, writers, directors, producers and pro athletes, amongst others. Back in the day, I met Bacon when our kids played little league together – and given our kids’ age difference, we probably wouldn’t have met if he wasn’t voted president of the little league (two times).
But that’s only one of the odd jobs (or thankless volunteer positions) he’s held in the past. His resume also includes titles such as “sports anchor” and TV “play-by-play announcer” from his days living in Manchester, New Hampshire. Two roles you don’t expect to see on the resume of a future finance guy.
When I asked Bacon to cook up some advice for actors last week, he was gracious enough to oblige despite the looming deadline for filing taxes on extension, October 17th.
Here’s what he had to say:
Actors are creative individuals: Great at their craft – maybe not great with money. What’s the single most compelling piece of advice you can give to actors involving their finances?
Finances should be among the first things to address – but often are an afterthought. In this context, it’s way better to be Smokey Bear than the fireman. It’s way more complicated and expensive to fix things after the fact.
Should an actor choose to go it alone (without using finance professionals like a CPA), what is the most important thing they need to consider?
Compliance, compliance, compliance. The first thing in an actor’s mind related to going it alone should be taxes, insurance, and business compliance. There’s so much more to it these days. It’s become more complex and will continue to go in that direction. There are city business license issues, corporate maintenance for loan-out (corporations) and tax laws that get passed where no guidance is provided for months or even years later. The professionals even struggle navigating some of this.
Do you have a particularly tricky example of this?
A great example is the California (and other states’) tax workaround to help restore the lost benefit of the federal tax deduction for state income taxes. The bill passed first, and then we had to wait months for a legislative fix before we felt like the coast was clear to actually make an election and take advantage of the new law.
What’s the most common mistake you see young actors make when it comes to filing taxes?
Not filing taxes.
What tax resources do you recommend for actors who are starting out and dealing with disposable income for the first time?
The tax professional is the best resource, unless an actor has a knack for finances and can navigate all the material and information via Google. If things aren’t too complicated, some of the free tax software can do the job such as TurboTax. There’s a big difference in the approach whether or not the actor has a loan-out corp. If not, it’s easier to navigate with less professional support. When a loan-out corp is added to the mix, we see more mistakes or oversights happen without the proper planning and guidance.
In the realm of living within your means, I heard you once make a point about “lifestyle.” You said: “You have to live your life like it’s the last movie you ever make in your career.” Is assuming financial windfalls will continue one of the more common pitfalls for actors?
Yes, but I think there are two issues. One is living a lifestyle as if the current inflows will continue – which is a bad idea. Another is simply acting on the urge to treat oneself to something big when the windfall comes in. When we have a few extra bucks in the account and we’ve had our eye on this toy we want or have wanted, it’s understandable that we may go for it to “treat ourselves.” But after the endorphin rush subsides, that’s less money to cover the financial slow period in what is a very fickle and unpredictable profession. It’s not a long-term memory exercise to simply look back at the impact of the Covid shutdown. We can plan for a lot of things, but we can’t plan for everything. The two dreaded words: force majeure. There are other dreaded words – “no season two” – but you get the point.
At what point should a successful actor make a move from using a tax preparer/CPA to using a business manager?
We see it happen in a couple of ways. If the tax preparer/CPA has solid knowledge of the entertainment industry, then I would suggest the actor milk it as long as one can. Why pay the additional fees to a business manager when it’s not necessary as long as that CPA helps to plan and doesn’t just take in the information at the end of the year and spit out a tax return.
As needs grow to where the concierge accounting is important, then the business manager is an important advisor to bring into the fold. Business managers take a view of everything in the client’s financial life and help ensure everything is in place. Insurance (property and casualty, life, disability), estate planning, tax planning, financial planning, budgeting. A great example of when bad decisions backfire is when a client is working out of the country. If planning isn’t done up front, it could be costly from a tax standpoint as there are things that can be done to mitigate some of the international tax hit.
A business manager or a good tax planner would be vital to that effort.
What’s the other sign that it’s time for an actor to expand the team?
The other sign is simply when the actor needs more entertainment-focused support as well as someone who thrives in performing the concierge services like buying the cars, helping buy the houses, securing lending, and making sure an investment advisor(s) is in place when there’s money to invest.
Is there a ballpark figure you can point to (in terms of income generated) when it makes sense to get a loan-out corp?
The Mendoza Line (a la the minimum threshold) used to be around $250K-$300K generally, though there were exceptions. Since the 2017 tax law hit when we lost all the deductions (can’t deduct agent, legal, or business management fees on an individual federal tax return), that number has gone way down. Some argue it makes sense to get a loan-out for as little as $75,000-$100,000 in gross income.
The fees to set up and maintain the corp and pay someone to do the corp tax return, as well as other costs like business insurance are potentially offset by the benefit of the deductions (commissions and other business expenses) one can take at the loan-out corp level that they can’t take as an individual.
Each case needs to be analyzed, but that’s the general feel in the industry.
Finally, speaking of the Mendoza Line, the MLB playoffs are in full swing. As a former play-by-play announcer, give me your best call for why using financial professionals is the right call…
The financial game is changing, and we’ve been seeing nothing but a diet of curveballs these days. We haven’t seen a lot of good contact over these last few innings… just a bunch of foul balls.
It’s time to bring in the pinch hitter.
If you want to hear more advice from Bacon about money management in the world of sports and entertainment, take a quick listen at this interview he did on The Biltmore View podcast.
The interview above was lightly edited for length and clarity.
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Gregg Rosenzweig has been a writer, creative director and managing editor for various entertainment clients, ad agencies and digital media companies over the past 20 years. He is also a partner in the talent management/production company, The Rosenzweig Group.