Federal Tax Incentive
The American Jobs Creation Act is designed to stimulate investment in film. The incentives are available for "qualified productions" commencing after December 31, 2007 and before January 1, 2010. The Act benefits producers and production companies by granting an immediate tax deduction for the full costs of a production in the year the costs are incurred (as opposed to having to spread or amortize those costs over a period of years.) Deducting the costs up front while deferring the income from the film until later years when it is actually incurred will significantly reduce or eliminate taxable income for the film in the first years of exploitation.
The new federal tax program applies to those films that have production budgets between $1 and $15 million, and spend at least 75 percent of their total "qualified compensation" on work performed in the United States. "Qualifying compensation" includes payments for the services performed in the U.S. by actors, directors, producers and production personnel. The budget cap increases to $20 million where the production and expenditures are in designated "depressed areas" and communities.
The relatively modest minimum budget threshold of the federal tax program (minimum of at least $1 million) makes this provision a user-friendly tool for independent film producers, many of whom cobble financing from a variety of investment sources including private equity investors. In the typical scenario, where a film is co-produced by numerous investors, the deduction for qualifying expenditures must be apportioned among the investors/owners of the film in a manner that reflects each investor's proportionate investment and economic interest in the project.
Qualified film and television productions include any production of a motion picture (whether released theatrically or otherwise). The Act also covers miniseries, scripted, dramatic television episodes, and movies-of-the-week.
