Contract Analysis & Insurance for Expats in Los Angeles

Start with what it is not. The Reed Corporation is a CPA and tax firm. We do not practice law, and nothing in a contract review from us is legal advice. We do not sell insurance and we collect nothing from any carrier. Contract analysis for expats in Los Angeles means reading your agreement for its accounting and tax consequences, then telling you plainly what those consequences are so that your own attorney and your own insurance broker can do their work with better information in front of them. The attorney owns enforceability. The broker owns coverage. We own the question of what this deal does to your books and to your return.

The first thing we read is the identity of the contracting party, because the name on the signature line decides which return the income lands on. Next come the payment mechanics. Currency and timing both change the number that eventually reaches a tax form, and a milestone schedule can move revenue across a year boundary without anyone intending it. We read the services description against the way the work is actually performed, since that comparison drives the classification questions the IRS describes under employment taxes. We read the termination and kill-fee language too, since a fee paid for work that never happened is still income in the year the money arrives. We read the records and audit clauses against the substantiation standard in the IRS recordkeeping guidance, because a contract that promises the counterparty access to your books is a contract that assumes you keep books worth showing.

A client in Lisbon signed a retainer with a Los Angeles studio at 12,000 dollars per month, invoiced in euros, payable at 60 days. The agreement named him personally, even though he had formed a California S corporation two years earlier and had been reporting the studio income on that corporation’s return ever since. That mismatch is the entire problem in one line. The 12,000 dollars a month was owed to a human being under the contract while it was reported by a corporation on the return. We caught it before the first invoice left his desk. Re-papering the agreement in the entity’s name cost one email and a signature.

The common mistake is signing personally and reporting corporately. It shows up constantly, and it is the first thread an examiner pulls. An examiner who finds a studio paying a person while a corporation reports the money does not need a theory. The documents make the argument for him. The rules at business structures assume the entity that earned the money is the entity that contracted for it. California is no gentler. The Franchise Tax Board charges the 800 dollar minimum franchise tax and an LLC gross-receipts fee against the entity you actually operate, and an entity with no contracts in its own name is a hard entity to defend as the earner of the income.

Our bookkeeping team sets up the ledger to match the agreement rather than fighting it every month, and our tax strategy consulting group handles the entity and timing questions before a signature makes them permanent. Clients with a deal in front of them can request a consultation and send the draft over. Read the agreement before signing it, and the next twelve months of accounting mostly take care of themselves.

Payment terms decide timing, and timing decides the tax year. A cash-method business reports income when the money is constructively received. An accrual-method business reports it when the right to the money becomes fixed and the amount can be determined with reasonable accuracy. Those methods are described in Publication 538, and the difference is not academic. A December contract with 60 day terms can put revenue in this year on one method and next year on the other. That single choice can be worth more than the fee negotiation that preceded it.

Currency is the second lever. An agreement denominated in euros with payment landing in a United States entity’s account creates a foreign currency gain or loss between the invoice date and the day the wire clears. On one 5,000 dollar invoice that is noise. Across a year of them it stops being noise, and the gain or loss has to be recognized rather than absorbed silently into revenue. We tell clients to write the functional currency into the agreement instead of letting a payment processor decide it by default, and to say in the document which party carries the conversion cost. Where the contract is silent, the accounting software picks a rate on its own, and nobody reviews that choice until a year of it has piled up.

Where money arrives through a platform or a marketplace, a Form 1099-K may report the gross amount that passed through. The platform reports gross. The contract may have netted a commission before the money moved. The gross figure is not wrong. It is simply not the figure the contract produced. If the books follow the contract and the IRS follows the 1099-K, the return shows less income than the IRS expects and a notice follows for a difference that was never real. We reconcile the two before filing rather than after the letter arrives, and the deductible side of that spread is ordinary business expense under Publication 535.

One agreement we reviewed let the foreign payer deduct local withholding tax from every invoice. On a 12,000 dollar payment, 10,200 dollars actually arrived. The client had priced the engagement at 12,000 dollars and had budgeted around 12,000 dollars. A gross-up clause would have cost nothing to insert and would have preserved the full amount. The withheld money is a foreign tax, and whether it comes back through a credit on a United States return depends on rules that do not always deliver a dollar for dollar recovery. Losing 15 percent of every invoice to a clause nobody read is an expensive way to learn that.

The common mistake is treating the payment schedule as a commercial detail beneath the accountant’s notice. It is a tax term wearing commercial clothes. Timing terms also drive the estimated taxes calendar, and an expat who books a large milestone in September without adjusting the September payment pays a penalty on cash he had in hand the whole time. This is the part of contract analysis for expats in Los Angeles that pays for itself fastest. Our bookkeeping team codes each milestone to the right period as it happens, and our tax strategy consulting group sets the quarterly number against the contract rather than against last year. Fix the terms while the document is still a draft and the timing question never becomes an argument.

Yes, and the W-9 comes before the first payment rather than in January. A Form W-9 gives you the payee’s legal name and taxpayer identification number at the one moment you can reliably get them, which is while you still owe the person money. The form also tells you whether the payee is a corporation, and payments to corporations for most services are exempt from reporting, so the W-9 answers the question of whether you file anything at all. If you pay a United States person 2,000 dollars or more for services during the year in the course of your trade or business, you report it on Form 1099-NEC by January 31. Rent and several other categories run on Form 1099-MISC instead, on a different schedule.

Without a W-9 on file you are expected to withhold at 24 percent under the backup withholding rules and remit that money. The liability for failing to do it belongs to the payer, not to the contractor who never sent the form. The penalty for a late information return scales with how late it is, and it applies per form rather than per vendor. Owners living abroad tend to hear all this and assume distance dilutes the obligation. It does not. The company is a United States company, the payment is a United States payment, and the reporting duty travels with the entity rather than with the owner’s passport.

The larger question your contract answers is whether the person is a contractor at all. Behavioral control and financial control drive that determination, and the tests are laid out in the IRS employment taxes material. A clause reciting that the parties intend an independent contractor relationship does not settle it. Conduct settles it. If the honest answer is employee, the company owes payroll deposits reported on Form 941 and issues a Form W-2, with federal unemployment tax on top of that. California is stricter still. The state applies its own ABC test, and the Employment Development Department enforces it against companies that never once thought of themselves as employers.

A client paid a Los Angeles editor 12,000 dollars across a year with no W-9 in the file and no information return issued. The 12,000 dollars was a real expense and remained deductible, but the late form carried its own penalty, and the bigger exposure sat somewhere else. The editor worked a fixed schedule on company equipment under daily direction, which is what an employee does. Reclassification would have put payroll tax on the whole 12,000 dollars plus interest, and California would have added an assessment on the same facts. He also had no signed agreement in the file, which left the classification argument resting entirely on how the work had been performed.

The common mistake is collecting W-9 forms in January for payments made the previous March. By then the contractor has been paid and has no reason to answer the phone. Build the form into the onboarding step of every engagement and the problem disappears. A vendor file holding a signed W-9 alongside a current address is not sophisticated work, but it is the difference between a filing and a scramble. Our bookkeeping team holds those vendor records so January is a print run rather than a hunt, and our individual tax return group picks up the other side when a client is the one receiving the form. Get the paperwork at the start of a relationship and filing season stops depending on anyone’s goodwill.

The contract and the entity have to describe the same business. Sign in your own name and the income is yours personally, whatever your formation documents say. Sign as an LLC and the classification of that LLC decides the form. A single-member LLC with no election is disregarded by default. An LLC that filed Form 8832 or made an S election reports somewhere else entirely, on Form 1120-S in the S case. The default rules at business structures apply when nobody made a choice, which is most of the time.

Then we read the indemnity clause and the limitation of liability for a number. A contract that caps the counterparty’s exposure at fees paid while requiring you to indemnify without any limit is an open balance-sheet risk. A cap expressed as fees paid over the trailing twelve months is also a different number every quarter, and somebody has to actually compute it before it matters. Whether the coverage is adequate is a question for your broker and your attorney rather than for us. What we do is put the number in front of them. We identify the maximum reasonably foreseeable exposure the document creates, and we compare it against the coverage limits you tell us you carry. We do not sell insurance, we place no policies, and no carrier pays us anything. The adequacy call belongs to the broker who is licensed to make it.

Premiums matter on the return too. General liability and professional liability premiums are ordinary business expenses of the entity that pays them under Publication 535. Paying a corporate risk from a personal account puts the deduction on the wrong return, and an expat with a foreign personal bank account does this almost by reflex, because it is the account that works at 2 a.m. in another time zone. The fix is administrative rather than clever. Move the billing to the entity and reimburse the difference properly.

One client carried a professional liability policy with a 12,000 dollar annual premium paid from his personal account in Singapore while every contract sat in his California S corporation’s name. That 12,000 dollars was a corporate expense funded personally, so it was sitting nowhere useful. We moved the policy billing to the entity and had the corporation reimburse the prior year under an accountable plan, which put the 12,000 dollars where it belonged. His studio contract also required a certificate of insurance naming the studio as an additional insured, and his policy carried no such endorsement. His broker fixed it in a day once somebody told him it was in the contract.

The common mistake is assuming an entity creates protection by itself. It does not. An entity that signs nothing and shares a bank account with its owner is a name on a state filing rather than a business. Bank separation is the cheapest evidence there is, and the entity should also be the party named on every certificate of insurance. California charges that entity the 800 dollar minimum franchise tax through the Franchise Tax Board either way, so you may as well collect the benefit you are already paying for. This part of contract analysis for expats in Los Angeles takes an hour and prevents years of untangling. Our tax strategy consulting group runs the entity fit, and our individual tax return group makes sure the personal side agrees with it. Align the paper with the practice now and every later deal inherits the fix.

Legal advice sits outside it. We do not draft your agreement and we do not opine on whether a clause would survive a challenge. That work belongs to your attorney, who is licensed for it and carries insurance against being wrong about it. We read the document for what it does to your accounting and your tax position, and we say so in writing. Where our reading raises a legal question, and it often does, we write the question down and send it to your counsel rather than answering it ourselves.

Insurance sits outside it as well. We do not sell policies, we are not appointed by any carrier, and no commission reaches us from any coverage you buy. Whether a limit is adequate for the risk you are taking is a judgment your broker is licensed to make. What we contribute is the input the broker cannot generate alone. The revenue at stake and the indemnity exposure written into the document are numbers that come off the books we keep, and a broker working without them is guessing.

We also do not opine on the law of your country of residence. A contract governed by California law and performed from Madrid can create obligations in Spain that no American professional should be pronouncing on. Where a client has local counsel, we coordinate with them. Where a client does not, we say plainly that the gap exists rather than papering over it. Nothing we provide is a guarantee of a tax outcome either. No return is beyond an audit, and no contract review removes every audit risk. Where a matter has already produced correspondence, an IRS notice can be worked with a Form 2848 power of attorney, which is a different job from the one your lawyer is doing.

What we do is narrow and useful. On a recent review the deliverable was a two page memo on a production agreement. It said the 12,000 dollars quarterly milestone would land in the wrong tax year under the client’s accrual method, that the withholding clause would shave the payment before it arrived, and that the signatory named was the owner rather than his corporation. That 12,000 dollars per quarter was the whole economics of the deal. Each of those points was an accounting fact rather than a legal opinion. His attorney redlined the clauses. His broker adjusted the limits. We updated the books and the estimated payments.

The common mistake is asking one professional to cover all of it. The client who wants his CPA to bless the indemnity language is asking for an answer he cannot rely on, and the client who wants his lawyer to set the revenue recognition method has the same problem in reverse. Our scope for contract analysis for expats in Los Angeles is drawn so that each professional works inside their own license, which is what makes any of the advice worth having. Our bookkeeping team supplies the numbers behind the memo and our tax strategy consulting group writes it. The IRS small business material is a fair starting point for owners who want the background first. Bring us in while the agreement is still a draft and the review costs a fraction of what the cleanup would.