Federal Film Incentives End The Year

[John Patterson]

By Liz Storm
If you are involved in any type of film or TV or theatrical production and have not taken advantage of the federal tax incentives, please do so before January 1, 2010. The American Jobs Creation Act of 2004, which took effect October 22, 2004, extended Section 181 and Section 199 and provides significant tax breaks and tax incentives if you have the proper investor documents and have filmed at least one day between December 31, 2007 and January 1, 2010.

I recommend that you consult your accountant on the potential tax breaks, but as a general overview Section 181 as amended by the Emergency Economic Stabilization Act of 2008 provides that with respect to productions of film and television that started production after December 31, 2007, those producers have the option to either capitalize the production costs or to expense any and all “qualified film or television production,” up to a maximum of $15,000,000 ($20,000,000 if the production significantly occurred low-income community or a distressed county or isolated area of distress), regardless if the actual cost exceeds the amount.

Prior to the Act, many productions were leaving the United States and producing films in other countries because costs of labor and taxes were too high. Congress addressed threats to job losses from runaway productions in Section 181 within the American Jobs Creation Act of 2004.

Section 199 provides for a 9% deduction for income from domestic production activities. The amount of the credit is limited to the lesser of 9% of the net income generated by the domestic production or 50% of the taxpayer’s W-2 wages. For a production to be eligible, at least 50% of the total compensation for actors, productions personnel and others relating to the production of the film must be for services performed in the United States.

As many of you know, local states have also enacted tax incentives to filmmakers. States such as Michigan and Illinois have attracted film production. These tax incentives are combined with Section 181 to allow an investor to greatly minimize his or her risk. If a tax payer is in the thirty five percent (35%) tax bracket and a qualifying film is shot in Michigan which has a tax credit of up to forty percent (40%), an investor will be eligible to recapture seventy five percent (75%) of her investment in a qualifying production. This recapture is realized before the film is even released and/or makes its first dollar. This is also separate from transferable tax credits available in certain state film offices after a film has been completed that you can purchase at a reduced rate and apply to your personal or corporate taxes. However, for the producer or investor, these state and federal tax credits may be combined!

How do you qualify? You must have just one day of production occur before the January 1, 2010. You must have an investor agreement and a qualifying film. These incentives are available until the film is completed if you lock in your production before the end of the year. This letter is for informational purposes only and should not be viewed as tax or legal advice with respect to your production. For such advice, please contact your tax accountant or feel free to contact me directly.

Warmest regards,

Liz Storm
312-342-2151 (mobile)

Mailing Address:
P.O. Box 563
Petoskey, MI 49770