Business End of a Production Company

Jim Brennan

Jim Brennan

VHS Member Old Skool
Okay, I need some advice.  My main goal is to make movies, but I think it's silly for me to have my camera sit around when I'm not shooting a film.  So I decided to start a little production company.  I know a little bit about running a business  ( I used to have a consulting company for business development), but I'm less experienced about the specifics of this line of work.  So here goes.

I've had a couple of discussions with different business owners about shooting commercials for them, but nothing has panned out yet.  I'm also in negotiations with a corporate trainer about doing a video for him.  Finally I am talking to a local charity that works with my son about doing some video work for them.  This includes a corporate fundraising video and a community awareness video.  That would all be pro bono.

Now in my old business, I had no problem taking a loss at tax time for expenses incurred against my earnings.  More than once the losses were greater than my earnings.  (reason number 657 that I don't do that business anymore)  I've laid out over 4 grand in expenses this year, including the camera.  I am pretty confident that I can take these as legitimate expenses, (even though I haven't seen dollar one for my efforts) and I plan to do so.  I have already registered my trade name with the state, and opened a business checking account with a little seed money.

All this seems pretty straightforward to me, but if anyone thinks I am in error, please let me know.

My question is more concerned with my "creative" efforts.  I did a short film in September.  The primary purpose of this was to use as a calling card to gain prospective financing and contacts for a feature in the next year. (We hope).  Are the expenses for this (primarily food for the cast, some props, wardrobe and mileage) deductible as a business expense?  How long (or how many) can I go, deducting expenses for shorts under this (legitimate) premise?  I have no commercial plans for this piece, other than what I mentioned (Meaning no festivals, distribution, etc).

If anyone has any experience with this, I'd love to hear your feedback.
 
Re: Business End of a Production Company

i'd chalk it up to advertising budget :)
 
Re: Business End of a Production Company

A good program to help keep track of expenses for tax purposes is Quickbooks. All that stuff is deductable/business expenses.

Do your business as a sole proprietor, get an EIN number from the IRS.
 
Re: Business End of a Production Company

Not sure how it's set up in the States but here I can lose money hand over fist (within reason) and deduct it all as a business loss. There is no crime in running a company poorly, as long as you pay any taxes owed. Which at a loss are not only zero but you can apply that loss to your personal income taxes as well. As long as you have reasonable expectations to earn money, you can't be faulted for not earning said money.
 
Re: Business End of a Production Company

If you're a sole proprieter, the IRS will determine whether you're a legitimate business or a "hobby". The last time I looked at the rules, which has been *many* years ago, you had to make a profit in something like two out of five years in order to be classified as a business. Maybe it was three out of five. So you could lose in the first two, but if you lost in the third year then you were automatically reclassified as a hobby, which limits or eliminates your ability to deduct.

You're asking questions that would best be answered by an accountant, because when you go talking about deductions you bring the IRS into the equation, and you want to have all your ducks in a row for that...
 
Re: Business End of a Production Company

[quote author=Jim Brennan link=board=Offtopic;num=1101752136;start=0#0 date=11/29/04 at 10:15:36] Are the expenses for this (primarily food for the cast, some props, wardrobe and mileage) deductible as a business expense?  How long (or how many) can I go, deducting expenses for shorts under this (legitimate) premise? [/quote]

I think the years benchmark Barry and advice gave is correct.

How long? simply, you can probably claim unti you get caught--isn't it all like that?
 
Re: Business End of a Production Company

There ya go. Sounds like you still have some room to play.

The nice thing is the "start up" or first year or two can still be a wash financially. This gives you the freedom to buy your toys and not stress the profit margin.

And Barry made a good point - Talk to an accountant so you don't get caught with your pants down!
 
Re: Business End of a Production Company

Barry,

That is what I read last year. They said they don't expect small businesses to make money the first couple of years, because of startup costs and building up a customer base.

Actually, you can call the IRS they are very helpful, that is where I got most of my info. Plus their website is very informative.
 
Re: Business End of a Production Company

Thanks a lot.  You guys confirmed my thoughts on this.  It really is easier to convince my wife to but stuff I need when I tell her it's a business expense.
 
Re: Business End of a Production Company

You should receive an invoice in the mail for our consulting services shortly...

Add that to your expenses. ;D
 
Re: Business End of a Production Company

[quote author=Jim Brennan link=board=Offtopic;num=1101752136;start=0#9 date=11/29/04 at 22:00:22]  It really is easier to convince my wife to but stuff I need when I tell her it's a business expense.[/quote]

Trust me it works. When we got back more in taxes because of the stuff I claimed (computer, cameras(film), mileage, film, processing, dvc tapes, internet, home office, blank dvds, software, it really adds up to some serious savings.

She is good at keeping all my receipts and now scours our receipts for deductions. It is easier to justify to yourself and your wife when you need something to do the stuff that needs to be done.
 
Re: Business End of a Production Company

I'm starting one ... I'm not sure what the laws are here in Canada.

But I shot a short film in the summer... would that mean I would get some of the money back for rental of the equip? when doing my taxes next year.
 
Re: Business End of a Production Company

If you set up some kind of company related to the expenses, yes. The losses from the company can be applied to your personal income taxes. If you plan to make more then 30K you will need a GST number. For small companies they have combined the business and GST numbers. You can do most of the paperwork yourself if you have a little free time.

*** A quick visit or phone call to an accountant can help you set up the ins and outs.
 
Re: Business End of a Production Company

Shorts or ANY reel building material can all be classified as a business expense...this includes any money at all used to create this material. All you need is receipts and/or invoices and a good accountant.
 
Re: Business End of a Production Company

[quote author=natob2 link=board=Offtopic;num=1101752136;start=15#15 date=11/30/04 at 13:08:02]Shorts or ANY reel building material can all be classified as a business expense...this includes any money at all used to create this material. All you need is receipts and/or invoices and a good accountant.[/quote]


good to hear my man.
;)
 
Re: Business End of a Production Company

In case anyone needs a reality check..the tax stuff you need to account for and do for the "tax breaks, perks or benefits" is not that fun and easy. Somewhere along the line..it forces you to hire an accountant and get into doing stuff like QuickBooks.

Never think, "oh, I can just write that off." becuase it is NOT like free money.
 
Re: Business End of a Production Company

No, you're right, it's still out of your pocket. BUT, any deduction is still a discount on the toys. :)
 
Re: Business End of a Production Company

"Writing it off" your taxes is not anything whatsoever like free money. Even if you're able to take a 100% deduction (Section 179, I think?) your actual cash savings will amount to no more than the taxes you would have paid on the money you used to buy it.

So if you buy a $4,000 camera thinking you can "write it off your taxes", and you're in the 15% income-tax bracket, your total tax savings would be $600. Not a bad savings, but you'll still be out-of-pocket for $3,400.
 
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