Saving Money Through Incorporation

Discuss About The Organize Plurality Contemporary Democracies.

This newspaper article explains the problem that actors and actresses face when they want to save their coins and how taxation impacts on this. It talks about how may prefer to incorporate and how accountants can help them to ensure that they include their money well.

Due to the new tax law in America, millions of actors and actresses in New York City have been going to their accountant’s offices with an agenda to incorporate their money to save. James Yaegeshi who is an actor has also found himself going to his accountant’s office to include. Craig Manzino, who is an accountant that specializes in the entertainment industry, says that it has been non-stop and everyone wants advice (Schaltegger & Burritt, 2017).

The tax rate has dropped by 3%, and the standard deduction has doubled. However, the people that work in the entertainment industry cannot deduct the significant expenses that contribute to their success. In the new tax law expenses like taking acting classes, buying scripts for auditions and voice lessons are not deductible (Price, 2017). Mr. Manzino said that many actors are spending 20% to 30% of their income to generate jobs. However, if one is a trainer, lawyer or works for the Yankees, then they do not have to worry about these expenses (Seele & Gatti, 2017).

Adam Donshik who is an actor decided to form his entity in December said that for him he was used to deducting haircuts, headshots, clothing and travel expenses. After the new tax law, he had to make some changes if he wanted to make a living wage because it was the only way to survive. Incorporating helps the hidden expenses to be canceled out. As much as combining is an excellent way to save money it also has costs of its own. The initial fees usually cost around $1000, but there are other costs that a person must pay when they are newly incorporated. These costs include social security, Medicare, corporate taxes and bookkeeping and accounting costs. All summed up it usually adds up to $20000.

People in the entertainment industry should also know that once they are incorporated, they will no longer receive unemployment benefits if they are out of work. Generally, Mr. Manzino says that organizing is not for everyone and it will not save money for everyone because of different situations. Some factors that need to be considered before incorporating are such as if one is single, married, rents or owns and also the income. For an entertainer that earns $200000 then they are encouraged then they are highly encouraged to incorporate as compared to those that make $38000 which is the standard salary for most actors and actresses.

Costs and Challenges of Organizing

This excludes actors that have support jobs such as working at Starbucks because their income cannot include this. For most New York workers earning money that is worth incorporating means lucrative commercial work or steady gigs such as in television series. Mr. Yagaeshi says that he knew a lot of his friends that combined but only decided to make it official after the new tax laws. He says that working in a show means leaving in New York and since he has a family in New York he has to pay for two shows which create a dent in his pocket, thus deciding to incorporate (Kaya, 2017).

Accountants have also encouraged their clients to put money in retirement plans because it saves money on taxes, but not everyone can afford to do this. Mr. Manzino says that one of the problems of advising clients this year is that the Internal Revenue Service has not issued guidelines on interpreting the new law hence the organization is left guessing. Another challenge that they face is trying to figure out if an actor’s income will remain the same as the previous year to cancel out costs for incorporating (Smith, 2017).

The positive accounting theory’s primary aim is to explain and predict what would happen in an accounting practice and therefore it is not prescriptive. For example in this case, when the accountant wants to incorporate, he or she will have to predict the actor’s income in the next year. Therefore this shows that they do not know what the salary ought to be but rather what it will be.

Another issue that this theory relates to is when actors have to try and predict if incorporating will save them money or not. For some, it will not depend on factors such as marital status and for others, it will. That’s why instead of trying to figure out what will happen, actors are streaming into the offices of accountants to figure out a plan (de Villiers & Maroun, 2017).

It is not prescriptive. The theory tries to predict and explain what will happen in an accounting practice rather than describing it. For example, the accountants will have to predict the future earnings of an actor to commence incorporation.

It only explains what a person might do and not what they should do. Since the theory is based on predictions, then actions will also be based on this, and thus there is a possibility that the actions will not be done because the projections might not come to be. In this case, when the accountant predicts one’s future salary, they will come up with an incorporating plan based on this. Thus the methods may not be used because they are not what should be done Silva, Sancovschi & Santos, 2017).

The Role of Accountants in Financial Management

This theory only takes into account two relationships that are the relationship between the agent and the principal of business. The primary aim of this theory is to solve any conflict that would be present between the agent and the principal. The agent, in this case, is the accountant and the principal is the actor. The dispute between these two parties at most times arises due to diversity regarding objectives and interests.

The theory relates to this article in the relationship between the accountant and the actor. At most times the actor will follow the advice of the accountant on whether to incorporate or not. Tension may arise when the actor wants to incorporate when their salary does not allow it despite being advised by the accountant not to. This will result in conflict between the two (Shogren, Wehmeyer & Palmer, 2017).

One assumption is that it does not take into consideration risks involved. For example, if the actor does not incorporate, then they will face substantial money losses in tax. This risk only applies to the principal and at most time’s agents do not incur any risks (Trottier & Gordon, 2017).

Another assumption is that parties can only consist of two. For example, in this case, the parties are three: the actor, the accountant, and the Internal Revenue Service. However, the theory does not apply to relationships with more than three parties like the one above.

The normative accounting theory primarily deals with accounting systems and is based on the notion that one accounting system can be superior to another. It tries to explain why people choose an accounting system over another and which is the most appropriate in a given situation. The issue in this article that relates to this theory is when the actor tries to choose a system that will ensure they save most of their money.

It assumes that one accounting system can be superior to another. This is not correct because each accounting system is excellent in its way because each can be used to achieve different objectives. For example for some actors incorporating will ensure they save their money but this will not work for other actors. Hence it is wrong to assume that the systems can be categorized regarding which is more appropriate (Beams, Brozovsky & Shoulders, 2017). Another assumption in this

Mr. Manzino advises people in the entertainment industry to consider incorporating especially if they are earning a salary of $200000. He says that incorporating is the best solution for such people if they want to save money and also they should consider putting money in retirement plans. Also, Mr. Manzino asks actors to seek advice first before incorporating their cash because what works for one may not work for another. This is due to different factors such as the marital status and whether they own a home or not.

Relevance of Accounting Theories

The Financial Accounting Standards Board has issued the following exposure draft for online commenting to solicit proposed changes to Subtopic 350-40 of the FASBThe FASB exposure draft addresses the following issues

In April 2015, the FASB issued accounting standards update that was aimed at helping organizations evaluate the fees paid by a customer in a hosting arrangement. The board did this by guiding determine when the arrangement includes a license. In the amendments, when an arrangement consists of a license to the internal-use software, then the customer accounts for it (Levi-Faur, 2017).   This means that the license is recognized as an intangible asset and also it is liable to the extent that the payments are attributable to it. Under Subtopic 350-40 if a cloud computing arrangement does not include a license, then it is accounted for by the entity (organization) (Hayes & Reckers, 2017).

After the issuance of the 2015-05 draft, some comment letters requested for additional guidance on accounting costs for implementation activities in an arrangement. This is because the one in the Accounting Standards Codification was not explicit in the area. The amendments thus decided that the accounting for implementation activities applies to an entity that is a customer. Also, the qualitative and quantitative disclosures about set up costs apply to the body that capitalizes the implementation costs. This is following the internal-use software guidance (Dubos, 2017).

In the proposed Update, it spells out the requirements needed to capitalize implementation and upfront costs that are obtained in an arrangement and also those obtained in internal-use software. Also, it requires a customer to follow the guidance to know which costs for implementation would be capitalized as an asset (Manish & O’Reilly, 2018). The costs to develop or obtain the internal-use software cannot be capitalized as an asset under Subtopic 350-40. The customer expenses the costs for implementation activities during the term of the contract.

The amendments in the proposed Updates also require specific qualitative and quantitative information to be disclosed about implementation costs associated with internal-use software in an arrangement. This will increase the information for users of financial statements (Kelsen, 2017).

Is it introduced in the public interest?

Yes, it is. The proposed Update aim at helping entities to evaluate the fees paid by a customer in a hosting arrangement thus the draft ensures that all its amendments cater to the public (bodies).

The Hertz Company supports the proposed amendments and believes that the treatment of the implementation costs of an arrangement as described is appropriate. However, they would like additional clarification on the proper balance sheet line item for the capitalization of the implementation costs. Also, they would like further explanation on the treatment of hosting and maintenance fees during development phase (Van Gunsteren, 2018).

Also, they believe that the impairment model in Subtopic 350-40 can be applied to cloud computing arrangements and thus an alternative model is not necessary.

This comment letter is against the regulation because it believes that the draft needs to include some additional information. For example, they want FASB to clarify on the appropriate balance sheet for implementation costs to be capitalized.

Overall, the company supports the Board’s efforts to address the issue of customers accounting for implementation costs concerning the diversity in practice. They believe that the proposed Update eliminates the variation in practice. The company also agrees with the amendments that the implementation costs should be capitalized using the guidance in Subtopic 350-40.

Also, the company does not believe that additional guidance is needed to determine whether the amendments apply to minor hosting arrangements. The company also agrees with the disclosures for implementation costs because they think it will provide more information for both entities. Also, applying the impairment model for implementation costs it is a reasonable approach (Friedman, 2017).

The letter is for the regulation. The company fully supports the proposed Updates and would like for the amendments to be put to use. For example, they agree with the disclosures and the impairment model and believe they will be appropriate.

Exelon supports the Board’s objective to provide specific and clear guidance on the accounting for costs of implementation activities in an arrangement. The company believes that the proposed Update addresses the diversity in practice and provides the value generated when such charges are incurred. However, they would like the board to make the following adjustments. First, to identify an accounting model for future projects that accommodates economic value for arrangements. Second, the company believes that the disclosures in the Updates are not consistent and need to be changed. Lastly, the presentation of amortization is not consistent and needs to be (Lin, 2017).

The company is against the regulation because they believe some adjustments should be made before adopting the amendments. For example, the company wants the disclosures for implementation to be made consistent.

HP supports the FASB’s effort to provide additional guidance concerning accounting for implementation activities incurred in an arrangement. The company also supports the effort to align the requirements to capitalize implementation cost obtained in a hosting arrangement. The HP Board believes that amendments aligned achieve this goal (Mansbridge, 2018).

However, the company does not support the FABS’ proposal to provide specific incremental disclosures because some information is vital to the company.

The company is both for and against the regulation. Hp is for the regulation because it fully supports the Updates to align the requirements for capitalizing the implementation costs. HP is also against the regulation because they do not support the decision for disclosures because the information is vital to the company.

The public interest theory is based on the assumption that companies or organizations seek to act in the interest of their customers. A company will thus ensure that their set strategies and goals cater to their customers. The second comment letter has utilized this theory in that they agree with the disclosures. With this, they hope that they can help their customers with all the information they need for capitalizing implementation costs. This theory, however, is the least effective in explaining the comment letters because most of them are against the regulation of the proposed amendments because they do not cater to the interest of the company (Grunig, 2017). 

In the private interest theory, agents are usually self-interested. For example, if a company is formed, then it ensures that its goals and objectives are for the betterment of the company. The company is self-interested in that in whatever it does it will make sure that the company has to profit or gain. The fourth comment letter has utilized this theory. This is because they do not agree with the disclosures for the implementation costs. The company does not want specific crucial information about the company to be in the hands of the entities (customers). They do not want this because of their self-interest. They want to protect the company first. This theory is the most effective in explaining the comment letters because most of them are against the regulation because it does not cater to the interest of the company (Deegan, 2013).

This theory explains that regulation is made based on the demand of the interest groups to maximize the income of its members. For example, the government forms the regulation laws and a company can ‘capture’ them to set regulation in a way that benefits the organization. This theory is the least effective in explaining the comment letters, and none have used it (Gans & Ryall, 2017).

Conclusion

The Financial Accounting Standards Board issued the exposure draft as an update from the previous draft, and they aimed at ensuring all the adjustments that were requested are included. The main aim of the proposed accounting standards in this exposure draft is to help organizations evaluate the fees paid by a customer in a cloud computing arrangement. The draft also provides guidelines in Subtopic 350-40 on the requirements for capitalizing implementation costs for an arrangement that is a service contract. It explains in details when an arrangement can be classified as an asset and when liability is recognized. The Board hopes that the amendments will cater to all companies and the adjustments are appropriate.

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