The New Year Fiscal Cliff deal in the United States Congress renewed the Federal film tax incentives that qualifying productions can take advantage of for 2013.
The set of tax incentives go back to 2004 and were implemented as an effort to curb runaway production (American productions that go to other countries to take advantage of their tax breaks? which are very often still better than those in the US).
It allows for immediate tax deductions on productions that spend their money in economically disadvantaged areas of the country. The package serves up several financially attractive benefits to producers, the most enticing likely being that expenses are immediately deductible (as opposed to having to be amortized over the course of several years) up to the first $15 million. This means that if an active financial participant, such as an investor, can deduct their proportion of expenses immediately.
That?s great for filmmakers because wealthy investors love to be able to get deductions that aren?t spread out over many years (amortized). It?s a good sales tool to raise money from investors.
And that brings us to a wider discussion of tax breaks beyond deductions ? rebates.
Rebates can make up a portion of your budget. A film tax rebate is just like those annoying rebates you get when you buy a new phone or whatever and you have to fill out a form and mail the form to the manufacturer and then they eventually send you a check for the rebate amount ? they are generally a tad cumbersome, but there is also generally a check coming at the end of the process.
Different US states and also different countries around the world have different rebates to offer. You can contact state or national film offices or ministries for specifics.
So, say you shoot a qualifying indie film in Michigan. They offer up to 42% back as a refundable, assignable production incentive. You spend $100,000 in Michigan shooting. Assuming you get that rebate and all goes smoothly, when you cash in that chip, you?re looking at approximately $30,000-$40,000 in cash back. You can use that for post-production. Or a festival run. Or marketing.
A cautionary tale ? I produced an independent called Broken Kingdom, half of which we shot in Bogota, Colombia. For what we spent, we were expecting ? and relying on ? getting back approximately $60K from that production to use as out post budget. We had all the i?s dotted and t?s crossed, even with the Colombian Ministry Of Culture helping us navigate their ?Ley De Cine? (loosely, the law of film production which governed our rebate set up). At the end of the production, we indeed received our certificate from the Colombian government for a tax deduction of about $60K. Now all we had to do was sell that tax write-off to a wealthy person or a corporation who wants it to off-set gains or income ? to lower their tax liability.
Unfortunately for us, no one ever told us how difficult (read: impossible) it would be to sell a $60K tax credit. The credit was too small for big corporations or wealthy people to be interested in. We had our Colombian production team working on it, and there are even brokers in Colombia who will, for a fee, match buyers and sellers. We got nowhere.
So without that $60K for post-production, we had to find another way to finish Broken Kingdom. Beg, borrow, and steal.
If we were to do it over again, I?d be sure not to count on rebates from a relatively new film incentive market like Colombia (which had just then began to offer and attempt to process these incentives). Canada ? you?re safe. It?s a proven process, which is why so many US films and television shows shoot there. The US state of Georgia is hot right now, too. But be hesitant if you?re shooting in new tax rebate territory.
As tax incentives are out there and can deliver cash back to your production, absolutely take advantage.
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