How to right of stuff on your taxes/Get a new biz car for free?

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Nik Manning

Well-known member
Ok here is the deal, I would love to start a production company. I have done small stuff here and there but basically I end up buying new stuff and barely using most of it. Example.
I bought a dual 2 g5 from craigslist for $1300
Final Cut Pro Studio $1299
minidv playback cam $299 (cheap for just playback and capture.)
cables,storage, etc.
I plan on buying a hdv cam in the next 6 months $3k-$8k
I currently work partime as a video editor at a college in Ohio.
I will be getting married in less than a month and moving to California by LA in a few months. Currently my lady makes more money and will transfer to cali. How can I start a company and right of my loses toward my/her taxes. So if I buy that hdv camcorder how do I go about the right way of maximizing my money.
Also I heard about a guy who says that he got a car for his business for free over 5 years.wha? Any idea how this is possible. I know that most of you are not lawyers but any help you can give or past experiences you can share would be most appreciated.
Thanks and I do have family in cali so I'm not a wide eyed teenager hoping for the world. Nope I'm 25:)
 
I'm in my third year of running my production company. This year I did something that I am proud to say was genious...I took my taxes to a pro. All you gotta do is keep all of your receipts for everything that goes towards your business: gear, expendibles, services, rentals, miles, meals, office supplies, etc.

Downloand this form...

http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

This will show you the categories of expenses you can write off. When you keep your receipts, make envelopes for each category, and hand those to your tax pro come tax time.

You'll also need to keep track of income from your business. If you're doing a decent amount of work, consider filing for a Vendor's license. This will make you eligible to collect sales tax from customers, which you in turn pay back to the state. It's better to do that voluntarily than to get audited and have to pay it back, plus fees.
 
mjmcneese2, is right. Hire and accountant to do your work and if you run your own company most things are write-offs. I wrote of $30k worth of goodies over the year and a half. My wife was an accountant so we've been writing off stuff for years, so a lot of my expenses from my first feature were write offs as well. I'm able to buy more gear than normal because of the tax implications, because I need write offs since my wife makes much more money than me. If your "girl" makes more money and is in a higher tax bracket, then marry her, so she can use your business expenses against YOUR combined taxes. :)It can get complicated which is why you "hire a pro". You then can write off the expense of hiring an accountant as long as it's a business expense.

As to your friend with the free car. I'm not sure about that, but from a write off perspective there are things that can make the car seem "free". If you buy and SUV over 5000lbs (I think that's the weight) you can write that off on one years taxes ( or in some case amortize the cost of it over 5 years ). So if you make a lot of money and are in a high tax bracket you can write it off in one year as a deduction or maybe what your friend did was split it up against his tax bill for 5 years. So say your SUV cost 50k and you had an income of 200k and are in the 40-50% tax bracket then you can take a 50k deduction basically making your car free. Or maybe you can take 10k per year for 5 years. I'm not sure if this works anymore...I did it two years ago and I don't know what level of income you need, etc. Even more reason to consult an accountant.

Like MJM.....keep every receipt in a box or a folder or a drawer.

Good luck.
 
insanityfw and mjmcneese2, is your business an LLC? I have been looking into starting my own as well. I am still researching things though. With an LLC, are you able to deduct company expenses from your personal income tax or does the LLC exist an its own tax paying entity? My wife is a pediatrician, so we could use the tax breaks. Sorry to jump in Nik Manning, but it seems to fit in with your thread.
 
Snodart, my old company was an LLC and we had a lot of write-offs, but you really don't need much in Arizona from a business standpoint, so I haven't done much in the way of business structuring. My residential design firm is registered simply as a sole proprietership and that allows an ease of use type of write-off.

In my understanding you really only need to be a business and in California it will probably be that you just register with the state. An LLC can have some tax benifits as well, at least from my understanding, but LLC's are really about liability and seem to be more geared towards partnerships and investments. SNODART, If your wife is giving you a lot of money for your purchases as is my case, you could probably just stay a sole proprietor and write just about everything off. Your paper, pens, cell bill, lunches and on and on. Also, buy that new Range Rover she's been eyeing, for a nice, big write-off (assuming she's been practicing a while and is in the 200's for salary). :)

Also, if she's friends with a lot of doctors keep in mind the Jobs Creation Act of 2004 has a semi-hidden provision that will allow investors to write-off 100% of their investment (just like back in the 80's) in a film. The major caveat is that you have to have a budget of 1 million +. Think of it. If you can find 10 people that all make 300k plus that are willing to invest 100k that they get to write off, you're off in feature film heaven. Don't forget to give me a producer credit. :) SORRY TO HIJACK FURHTER

Again, I'm not a professional so I don't want to be sued if somebody doesn't consult a pro first. :)

I'll try and talk to my wife tonight and see what she says about the LLC thing.

Best,

Jason
 
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Wow, thanks for the info. My plan was to have an LLC to avoid bringing the family down in case of a lawsuit. I was thinking that Film/media seemed like a pretty high stakes area for this. Asking your wife for me would be great.
 
Actually there's a new law that went into effect towards the end of 2004 that allows a small production company to take an immediate write off on their production costs up to $15 million. In certain economically depressed areas, this amount can increase to $20 million. I think this is called a section 181 deduction, referring to the section of the tax code.
 
There are a lot of variables, especially in California, for tax implications. As has been suggested get yourself a good accountant. Not one that tells you what you wanted to hear and has you writing off your movie tickets etc..

Chances are that if your spending less than $100K on equipment, with little or no income and have no employees the IRS will regard your business as a hobby. There's a lot of misinformation regarding taxes. Find a good accountant that can suggest the best way to set up your business and manage you finances.

I had one of those crack-pot accountants :furious3: that claimed you can write off anything entertainment related, and I was incredibly conservative [which probably saved me a lot of money], the IRS audited me for three years and it costs me north of $110K. :crybaby:

Also, welcome to Cailifornia, :kali: the unfreindliest small business state in the country. I went from 6 employess and approximately $12k in workers comp to 40 employees and about $375k in workers comp + health care insurance. I think everyone made money but me...:(
 
This thread reminded me of a classic Steve Marin comedy routine:

Now... you say, "Steve... what do I say to the tax man when he comes to my door and says, 'You... have never paid taxes'?" Two simple words. Two simple words in the English language: "I forgot!" How many times do we let ourselves get into terrible situations because we don't say "I forgot"? Let's say you're on trial for armed robbery. You simply go up to the judge and say, "I forgot armed robbery was illegal."
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snodart said:
Wow, thanks for the info. My plan was to have an LLC to avoid bringing the family down in case of a lawsuit. I was thinking that Film/media seemed like a pretty high stakes area for this. Asking your wife for me would be great.
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You're right about high stakes. One scorned actor or actress can start a real stink, but that's the name of the game.

My wife reminded me that I wasn't an LLC at the time of actual production and she is unsure as to whether or not you can now write off personal expenses for business purchases since she doesn't do accounting after her foray into the high-tech world. For my first film I created a Limited Partnership for financing and the created an LLC in the name of the film. Then that LLC became a Managing Member of the Limited Partnership giving a bit of protection on different levels. Then when the film was done I would let the LLC dissolve after the requisite amount of years and then for each film wold create a new business. This is a good way to do features, but not so good if you want to start a production company. For my old production company (Insanity Filmworks) I was an S-Corporation in the state of Washington. This was the company that was supposed to produce multiple films, but only did one and then lingered for years. After about six years of write-offs and no income I was lucky not to get audited...although we had a pretty good idea of what you can write off and not. Strippers are not really a write-off however as long as you don't get audited you might be OK, but keep in mind that the $1500 bill for that one night will be over 10k when the IRS get's ahold of it.

Seriously, there are pros and cons to all the different business structures. the S-Corporation allows personal tax benefits, but doesn't allow for as tough a layer of personal protection. An LLC does give you a certain level of protection, but the myth is that if you're an LLC that nobody can touch you.....simply not true. If somebody wants to get to you, they will. The government has made it hard to hide from lawsuits frivolous or not. If you have much to loose you might want to look into private trusts and blind trusts, but I think maybe even the government is nosing around in those a bit, but it's something to look into. i will be looking more into it in the next year as I prepare for my next feature.

All this typing is just emphasizing the point of trying to find a reputable accountant or business lawyer and put a couple grand into finding what works for you. Most structure will vary on your personal situation. How much you have to lose, what you plan to do with the company and if you expect to make money.

I have a feeling I'm just making matters worse so I'm going to quit for the night with one last thought. Put aside a few grand for legal research and business structuring...in a few years, if things work out really well you'll be glad that you did. It may mean a lot less gear in the moment, but could save you a lot of gear in the future.

Best,

jason

EDIT: If you file for an LLC, keep in mind that you don't have to spend thousands or hundreds of dollars for a service. Most states have websites where with a little research you can get an LLC establish for a couple hundred dollars. Just takes a bit more of your time.
 
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Sumfun said:
Actually there's a new law that went into effect towards the end of 2004 that allows a small production company to take an immediate write off on their production costs up to $15 million. In certain economically depressed areas, this amount can increase to $20 million. I think this is called a section 181 deduction, referring to the section of the tax code.
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Yeah, except not many people want to make a film in Detroit. OOOhhh, just kidding. I've been drinking heavily and couldn't help myself.

Seriously, if you have more info on this that sounds amazing. There are all these little, government sponsored things out there for financing and at the same time you can get $10 for an art grant of any kind nowadays.

Thanks Sumfun.
 
My head hurts. I see the point of hiring a pro to help figure this all out. Thanks for all the input and info. I will put it to use. Nik Manning, thanks for letting me briefly hijack the thread.
 
ChuckS said:
Chances are that if your spending less than $100K on equipment, with little or no income and have no employees the IRS will regard your business as a hobby.
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I think that's a bit extreme... I certainly haven't had a problem with this.

Anyway, if your goal is to deduct against your wife's salary, then you'll need to file jointly and operate as a sole proprietor...
 
snodart said:
My head hurts. I see the point of hiring a pro to help figure this all out. Thanks for all the input and info. I will put it to use. Nik Manning, thanks for letting me briefly hijack the thread.
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Anytime:kali:
And thanks to everyone for posting this is very helpful info.
Does anyone have links to documents or websites that have this type of tax info.

Also does anyone have one thing that they would never do again when starting a business?
So hopefully I can bypass that step. Thank you kind folks so much.
 
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ullanta said:
I think that's a bit extreme... I certainly haven't had a problem with this.

Anyway, if your goal is to deduct against your wife's salary, then you'll need to file jointly and operate as a sole proprietor...
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How would I accomplish this? Can I file jointly and still be a sole proprietor?
 
"Sole proprietor" just means that the business has no independant legal existence; it's all considered part of your personal income/expenses. Any other form of business (partnership, corporation, etc.) is a separate legal entity that you can invest in, but it's losses/expenses are separate from your personal finances. This is why they give you more liability protection - but a sole proprietorship allows losses to be deducted from your overall income (which, when filing jointly, includes both you and your wife).
 
insanityfw said:
Seriously, if you have more info on this that sounds amazing. There are all these little, government sponsored things out there for financing and at the same time you can get $10 for an art grant of any kind nowadays.
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Quoting from the 2006 RIA Federal Tax Handbook, which is supposed to be the most authoritative and accurate tax reference:

Paragraph 195 Expensing election for costs of film and TV production

For qualified film and TV productions commencing after Oct. 22, 2004 and before Jan. 1, 2009, taxpayers may elect to deduct production costs in the year the costs are incurred (i.e. to expense them) instead of capitalizing the costs and recovering them through depreciation allowances. (Code Sec.181(a)(1)) In general, expensing doesn't apply to any film or TV production the aggregate cost of which exceeds $15 million for each qualifying production. The threshold is $20 million if a significant amount of the production expenses are incurred in areas (1) eligible for designation as a low-income community or (2) eligible for designation by the Delta Regional Authority (a federal-state partnership covering parts of certain states) as a low-income community or isolated area of distress. (Code Sec.181(a)(2))

A qualified film or TV production generally is any production of a motion picture or video tape if at least 75% of the total compensation expended on the production is "qualified compensation." Qualified compensation (but not participations and residuals, as defined by Code Sec. 167(g)(7)(B)) is compensation for services performed in the U.S. by actors, directors, producers, and other relevant production personnel. For property which is one or more episodes in a TV series, only the first 44 episodes qualify. Sexually explicit productions, as defined by section 2257 of title 18 of the U.S. Code do not qualify. (Code Sec. 181(d)).

End of quote.

It's funny they threw in the porn clause at the end there!

I have an s-corporation, so this deduction is taken on schedule K, line 12d. There's actually an explanation in the instructions for IRS form 1120S (for reporting corporate taxes). It probably applies to LLC's and sole proprietorships, too, but I'm not sure. As mentioned before, please consult your accountant to see if it's applicable for you.
 
Sumfun said:
Quoting from the 2006 RIA Federal Tax Handbook, which is supposed to be the most authoritative and accurate tax reference:

Paragraph 195 Expensing election for costs of film and TV production

For qualified film and TV productions commencing after Oct. 22, 2004 and before Jan. 1, 2009, taxpayers may elect to deduct production costs in the year the costs are incurred (i.e. to expense them) instead of capitalizing the costs and recovering them through depreciation allowances. (Code Sec.181(a)(1)) In general, expensing doesn't apply to any film or TV production the aggregate cost of which exceeds $15 million for each qualifying production. The threshold is $20 million if a significant amount of the production expenses are incurred in areas (1) eligible for designation as a low-income community or (2) eligible for designation by the Delta Regional Authority (a federal-state partnership covering parts of certain states) as a low-income community or isolated area of distress. (Code Sec.181(a)(2))

A qualified film or TV production generally is any production of a motion picture or video tape if at least 75% of the total compensation expended on the production is "qualified compensation." Qualified compensation (but not participations and residuals, as defined by Code Sec. 167(g)(7)(B)) is compensation for services performed in the U.S. by actors, directors, producers, and other relevant production personnel. For property which is one or more episodes in a TV series, only the first 44 episodes qualify. Sexually explicit productions, as defined by section 2257 of title 18 of the U.S. Code do not qualify. (Code Sec. 181(d)).

End of quote.

It's funny they threw in the porn clause at the end there!

I have an s-corporation, so this deduction is taken on schedule K, line 12d. There's actually an explanation in the instructions for IRS form 1120S (for reporting corporate taxes). It probably applies to LLC's and sole proprietorships, too, but I'm not sure. As mentioned before, please consult your accountant to see if it's applicable for you.
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No PORN????? That counts me out. Seriously, good info and thanks again.

So much is spent on the right camera settings and editing techniques, etc. and so often many forget to even look at the business side at all.

Good stuff.
 
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