Question For FilmTVLaw.com:
Thanks for all the amazing advice on this blog, I always end up sharing the articles with at least one friend! Wanted to find out about the Section 181 tax deduction and whether that is still available, and also about any other tax advice you can give me for my film this year.
Answer by Brandon Blake, Entertainment Lawyer:
Well this is tax time so it is a great opportunity to discuss tax issues that face film and television productions, including tax incentives, section 181, and how to properly tax plan for your production. Please also see my Entertainment Lawyer Question and Answer Forum at www.filmtvlaw.com, for more in depth and money saving advice that I publish twice a month.
First off I will address Section 181 of the American Jobs Creation Act, the tax deduction for domestically produced film, television and theater productions. For all our clients who created offerings and qualified productions in 2016, the good news is that those projects will be grandfathered in for this year. The Section 181 tax deduction will be available for investors this year and for next year, provided production stretches into this upcoming year. So there is a reward for planning and foresight.
For 2017 projects, the Section 181 tax deduction has expired, and there is no current evidence that it will be revived this year.
However, that does not affect any of the tax incentives or tax rebates of other states. So, for example, the Georgia tax credit of 30% is still available, the New Mexico refundable tax credit of 25% is still a great option (with no minimum budget, which is a big plus), or the other state tax incentive programs.
Moreover, international tax incentives are still available, and are becoming even more important with the death of Section 181. The UK Film Tax Relief program provides a rebate of up to 25%, the refundable federal tax credit of 16% in Canada is still available, plus available provincial tax incentives in Canada which can double the federal incentive, and other more far flung tax incentives and deals can reach 50% of financing. So there are many opportunities to find a substantial portion of the budget outside of the US. Part of our development service focusses on identifying tax incentives and international funding for projects.
However, tax planning does not begin and end with tax incentives. Properly setting up the tax structure of your company can save you and your investors substantial money and avoid needless accounting complications.
For example, choosing the right tax structure for your production company can produce active losses for certain members, thereby making such an investment just as attractive as an investment under Section 181, if not more so, but the arrangement requires careful attention to detail when setting up the company. Filing the production company as a partnership or C-corporation, for example, could derail the very tax advantages that your investors might be looking for when Section 181 is no longer available.
Loan out companies are another incredible way to save substantial amounts on personal tax returns. For example, did you know that by properly forming a loan-out company, that a writer, producer or director could obtain a 100% tax deduction on all production related expenditures? Even discounting the benefits of liability protection and copyright protection and management, tax savings alone will often justify the setup costs of a loan out company for writers, producers, directors and others.
But no company will set up itself, and there is no magical “check the box” on your 1040 to make a limited liability company or corporation work for you and your investors. It takes careful tax planning and preparation, the kind of work that our firm does every day for film and television makers at every budget level.
As with any entertainment matter, please do not make a decision about complex issues without consulting an experienced entertainment lawyer first. Feel free to contact my office at www.filmtvlaw.com about a quote.
- By Brandon Blake, Entertainment Lawyer