2. Overview of the Mass. Film Tax Credit Payroll Procedures Accounting / Recordkeeping for AUP Additional Requested Information for Film Tax Credit Application Submission Cash Flow Considerations Personal / Corporate Tax Considerations Mass. Dept. of Revenue (DoR) Forms to Obtain the 90% Rebate Tonight’s Agenda 2 Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009
3. 25% tax credit for both above and below the line qualifying production expenses incurred in Mass. Exempt from paying sales & use tax on items purchased for production & crew meals Submit Application for Sales Tax Exemption for Film Production Certificate to Film Credit Unit at DoR Provide Form ST-12 Exempt Use Certificate to vendors Overview of Mass. Film Tax Credit 3 Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009
4. Must spend at least $50K on production expenses within a 12-month period 50% of total expenses incurred must be spent in Mass. OR 50% of total principal photography days shot in Mass. Spend $250K+ Requires an audit / agreed-upon procedure Performed by Massachusetts CPA Film tax credit is transferable or receive 90% cash rebate Mass. Film Tax Credit Requirements Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 4 November 5, 2009
5. Cost of rental equipment Employer-paid expenses FICA / Medicare Pension Federal & state unemployment Travel expenses Must originate and conclude in Mass. I.e. roundtrip airfare from Boston to Los Angeles does not qualify Production Expenses Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 5 November 5, 2009
6. Individual employee salary > $1 million Production expenses that do not qualify: Legal and audit / AUP Marketing and advertising Insurance Loan fees, completion bond expenses and interest expenses Archival materials and stock footage Production Expenses (cont.) Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 6 November 5, 2009
7. Each employee’s salary < $1 million Must withhold Mass. state income tax If employee claims Exempt on W-4 Must be a student Must complete Mass. Form M-4 and check box 5D Includes 1099-MISC wages (Independent Contractor) Includes fringe benefits Transportation Box rentals Qualifying Aggregate Payroll Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 7 November 5, 2009
8. In order to qualify for the payroll credit, the production company must withhold Mass. State Income Taxes Actors – both above & below the line Extras Crew Employees Independent Contractors Loan out companies Qualifying Aggregate Payroll Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009 8
9. Loan out companies Dept. of Revenue (DoR) mustapprove Form PWH-WW Performer Request for Waiver of Withholding prior to payment of wages Must submit separate PWH-WW for each production Use a payroll service that specializes in working with the Entertainment Industry Qualifying Aggregate Payroll Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 9 November 5, 2009
10. If the LLC elects to be treated as a partnership, guaranteed payments(i.e. salary) does not counttowards the film tax credit Consider working under a separate company – consult an attorney Limited Liability Corporations (LLC) Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009 10
11. Must file at least ten business days before starting work on production Mass. Dept of Revenue must approve the request for waiver If approved, then production company does not have to withhold Mass. Income tax Form PWH-WW Performer Request for Waiver of Withholding Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009 11
12. Accounting package Quickbooks or PeachTree Do not use Quicken – it is not meant for accounting Use separate classes Massachusetts expenses – one class Non-Massachusetts expenses – separate class Consider a third class for expenses that you’re not sure whether or not they qualify Involve CPA / Independent Auditor in the beginning of the process Accounting / Recordkeeping Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 12 November 5, 2009
13. Keep copies of all invoices & receipts, including petty cash For invoices / receipts, we recommend as a minimum: Each invoice is stamped with date entered into accounting system Each invoice is stamped with date paid Check stub / copy of check attached to invoices paid Vendor Invoices Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 13 November 5, 2009
14. For petty cash, we recommend worksheet: Number each receipt (i.e. 1, 2, 3, 4, etc.) Separate line for each receipt # Geographic location of where the expense was spent (i.e. Boston, Waltham, Worcester, etc.) Vendor name Purpose of expense Petty Cash Receipts Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 14 November 5, 2009
15. Date Amount Invoice / receipt # Vendor name Description of the expense Expense classification of general ledger (GL) account Not sure of GL account – put into Unclassified or Ask My Accountant Data Entry in Accounting System Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 15 November 5, 2009
16. Use a payroll service provider that specializes in the Entertainment Industry Enter total payroll costs into accounting system for each state worked in: Above the line (ATL) gross wages Below the line (BTL) gross wages Employer-paid benefits (FICA, Medicare, pension, federal & state unemployment, etc.) Payroll service fees Payroll Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 16 November 5, 2009
17. Application must be submitted with original signature (i.e. no scanned PDF / fax) All applicable fields on the application must be completed, including Production Information Identification of the production – narrative List of all sources of funds used to finance the production List of all parents or affiliates Budget and cost report for: All expenses Massachusetts expenses Required Information for Film Tax Credit Application Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 17 November 5, 2009
18. List of all employees who worked in Mass. All personnel – actors, crew, extras, talent, etc. Dates worked in Mass. Gross salaries earned for each employee Above information usually contained in Payroll Register provided by payroll service provider All Mass. principle photography days Dates Locations List of property not disposed of Independent Accountant’s Report (if required) Required Information for Film Tax Credit Application Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 18 November 5, 2009
19. DoR requests – all data Microsoft Excel format List of all vendors – include address Payroll register: Gross wages Mass. state income tax withheld Last 4 digits of social security number / tax ID Employer-paid benefits Payroll service fees Journal (dump) of all Mass. general ledger transactions Power of Attorney (M-2848) Additional Information to Submit with Film Tax Application Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 19 November 5, 2009
20. Company is registered with Mass. Secretary of State All owners / members have filed appropriate Mass. state tax returns If required, all owners / members have submitted quarterly tax estimates to DoR As part of the application process: DoR will check that each individual employee filed state tax returns If an employee receives a notice from DoR, don’t panic Employee may not be required to file Mass. tax return Employee should consult with their local CPA / tax practitioner Other Considerations on Film Tax Application Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 20 November 5, 2009
21. Will check to see if each employee filed their state income taxes If an employee receives a notice from DoR, don’t panic The employee may not be required to file Mass. tax return The employee should consult with their local CPA / tax practitioner Other assumptions: Mass. DoR will match each employee’s income as reported by the production companies against the income that they report on their state tax return Mass. DoR will share income information with the IRS Mass. Dept. of Revenue (DoR) Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009 21
22. Obtain 90% tax rebate (cash) after the end of your tax year Sell film tax certificate to a broker Assess cash flow considerations Submit film tax credit application after payment of production expenses Current gap in financing – use potential film tax certificate as a bridge loan Finance post-production / distribution costs Financial analysis – cost of receiving funds now vs. waiting 1+ years Consider tax implications of when funds are received Consult your local CPA / financial planner Do I Sell or Keep the Film Tax Certificate? Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 22 November 5, 2009
23. Receive a film tax certificate from DoR Use 100% of the film tax certificate against Mass. tax liability Receive a 90% cash refund on remaining balance due to taxpayer Example Film tax certificate: $25,000 Mass. tax liability: 10,000 Balance credited to taxpayer: $15,000 90% rebate (cash) due taxpayer: $13,500 How Mass. Film Tax Credit Works Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 23 November 5, 2009
24. 90% rebate / sale of tax credit certificate is considered income at date of the sale Pay both federal and state income taxes Each individual tax situation is different: Recommend putting aside 30% to pay taxes Try to match income and expenses in same tax year Consult your local CPA / tax practitioner Personal / For-Profit Entities Tax Considerations Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 24 November 5, 2009
25. 90% rebate / sale of tax credit certificate is considered income at date of the sale If the production ties into the organization’s mission: Not taxable Disclose income on Form 990 and financial statements Production does not tie into mission: Income is considered Unrelated Business Income Tax (UBIT) File Form 990-T and M-990T Not-for-Profit Organization Tax Considerations Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 25 November 5, 2009
26. Everyone – Schedule RFC – Refundable Film Credit Motion Picture Production Company Individual – Form 1, Line 42, Refundable Film Credit Not-for-profit organization, Form M990-T, Line 39, Refundable Film Credit Corporate – Form 355, Line 15 Partnership – Form 3K-1, Line 5h Mass. Tax Forms for Film Tax Credit Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 26 November 5, 2009
27. Not-for-profit organizations If production ties to organization’s mission: Form M990-T – Line 39, Refundable Film Credit If production does not tie to organization’s mission: Form M990-T – Line 30, Film Incentive Credit Certificate Number Both cases above: Schedule RFC – Refundable Film Credit Motion Picture Production Company Mass. Tax Forms for Film Tax Credit Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 27 November 5, 2009
28. Special tiered pricing for smaller productions (under $2 million) Help our clients from start to finish Typically, fixed price that encompasses all services rendered for Film Tax Credit: Provide an estimate of the Film Tax Credit based on your project’s budget Facilitate completion and DoR approval of the Form PWH-WW Performer Request for Waiver of Withholding prior to filming / payment of the loan out Submit the Tax Exempt Certificate Form Work with the payroll company to facilitate maximization of payroll tax credit Work with production accounting Perform the AUP (additional variable costs may apply) Complete and submit the Film Tax Application on your behalf to Mass. Dept. of Revenue Monitor the Film Tax Credit application process with DoR About Tobolsky & Wachsler CPAsAUP for Mass. Film Tax Credits Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 28 November 5, 2009
38. We are a full-service, family-owned (mother / daughter) CPA firm with over 25 years of experience in providing personalized services. Our services include: Audits, reviews, compilations and agreed-upon procedures for Film Tax Credits Tax services for individuals, corporations, estates, LLCs, not-for-profit organizations, partnerships & trusts Resolution of IRS, Massachusetts and other state tax notices Accounting / bookkeeping services Financial planning Referrals are always appreciated About Tobolsky & Wachsler CPAs Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 30 November 5, 2009
39. Irene Wachsler, CPA, MBA Tobolsky & Wachsler CPAs, LLC irene@milliecpa.com (781) 883-3174 To ensure compliance with the requirements imposed on us by Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein. Thank You! 31 Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174 November 5, 2009
