Cynthia Nixon Has a Corporation, and That's Totally Normal for Professionals Like Her
New York Gov. Andrew Cuomo brought up Nixon's corporation as a means of insinuating that she accepts corporate campaign donations.
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During yesterday's New York State Democratic gubernatorial debate, incumbent Gov. Andrew Cuomo told challenger Cynthia Nixon in an accusatory tone, "you are a corporation."
He was referring to The Fickle Mermaid Corporation, an S corp the former Sex and the City star turned political candidate formed in 1999, according to the New York Department of State Corporations and Business Entity database.
Like many in the entertainment industry, Nixon's S corp facilitates finances related to her acting services. Cuomo brought up Nixon's corporation as a means of insinuating that she accepts corporate campaign donations. Nixon has positioned herself as a progressive who is not beholden to corporate interests.
In a press release earlier this month, Nixon's campaign stated that it has received $2 million in contributions -- 98 percent of which were below $200 -- and had $441,000 in cash on hand as of Aug. 14.
The Cuomo re-election campaign, on the other hand, has $24 million in its coffers as of Aug. 30. From 2015 through 2017, more than 99 percent of Cuomo's campaign donations exceeded $1,000, according to a New York Times analysis.
"I am a person," Nixon retorted initially to Cuomo's characterization of her as a corporation. Then, when the issue of her corporation arose again during the last few minutes of the debate, Nixon clarified that many actors incorporate for tax purposes.
Why do actors form corporations?
"Due to tax codes," said Craig Manzino, CPA, head of entertainment and partner at Prager Metis. "They're typically S corps, and they're called loan-out corps. Their sole purpose is to loan out the acting services of that person. These aren't corporations like a GE or IBM corporate structure."
Typically, a professional who sells their services making $250,000 or more a year would consider going the S corp route, once they get to the income level where the costs of doing so aren't a burden.
"We always tell people, these aren't toys," Manzino said. "They're serious. You want to do it right."
Athletes are another example of individuals who form S corps. However, the law states that they must be paid as employees by the team that they play for, so they can only use S corps for aspects such as their endorsement deals and merchandise or autograph sales.
Nixon grossed $5 million between 2013 and 2017, according to reports on her tax returns. Of that money, she paid herself $2.1 million, and the remaining $3 million went to retirement savings, a salary for her wife, Christine Marinoni, assistants, taxes and expenses related to "professional development" (acting coaches, hair and makeup for performances, etc.), according to Politico.
"These are the typical things that would be itemized deductions, for an individual," Manzino said. "But definitely under our current tax code, those things are no longer allowed to be deducted, which is why actors use corporations."
Actors are considered employees by say, the networks they work for, but they're not eligible for benefits, Manzino explained. They're on their own for professional development, retirement savings and more. Tax laws have changed to limit deductions of these sorts of expenses over time, but currently, individuals are not allowed to deduct these things. Only corporations can.
"She is using the tax code legally to reduce her tax bill, no different than any other business owner," Manzino said of Nixon. "She's not doing anything aggressive or out of the ordinary."
So, why an S corp and not an LLC or sole proprietorship?
Well, for one, LLCs aren't part of the tax code. They're legal entities. A single-member LLC would file on their personal tax return, whereas an S corp files taxes as a corporation. Entertainers, specifically, form S corps because then they're their own employees. They pay their own payroll and taxes.
If an actor doesn't have an S corp, a media company might refuse to work with them. The IRS or state might sense that payroll taxes and unemployment insurance haven't been paid otherwise and come after them.
For those below the millionaire actor level, such as freelance writers or graphic designers offering their services, chances are they'd file as sole proprietors. But you have to consider your needs in terms of both legal protection and tax planning to decide what's right for you, Manzino said.
"It really is a very direct and personal decision based on facts and circumstances," Manzino said, explaining that individuals must weigh how their entity's ownership will be structured, whether they expect profits or losses and other factors.
"There's no real rule of thumb. I sort of equate it to therapy -- you can't take the advice that someone's giving your neighbor."