Year-end tax planning goes to the movies

Year-end tax planning is a bit more complex this year as many of our clients received loans through the Paycheck Protection Program. While the loan proceeds are not taxable, word is still out whether the business expenses paid for with the loan will be deductible. Therefore, we are preparing tax projections with two scenarios in mind: one If the expenses are deductible and one if they are not. Consequently, we are identifying creative ways for our clients to save on taxes over the next few years in the event they have a higher tax bill than anticipated.

One of those options is the Georgia Film Tax Credit. This program was enacted in 2008 as an incentive to production companies to film in the state. The credit is up to 30% of the qualified expenditures incurred by a production company from a Georgia vendor. Since most production companies are based in other states and therefore do not have any Georgia income, the state allows the production companies to sell their credits at a discounted rate to other taxpayers, This not only helps the production companies, but can also benefit Georgia taxpayers.

The process is relatively straightforward. Production companies hire accountants to prepare all the specific forms and documentation required by the state. The state of Georgia audits this information and approves the credit if all is correct. Once this is approved, the company uses brokers to sell the credits to taxpayers.

These tax credits are offered at a discounted rate that currently range around 86 cents to 93 cents on the dollar. These credits can be carried forward for five years, so the more time left in the life of the credit, generally, the more expensive they are.

In any event, these tax credits can be quite valuable for taxpayers with significant Georgia tax liabilities. For example, if you have a Georgia tax liability of $100,000, you could purchase $100,000 worth of film credits for $86,000, saving you $12,000. Even though you would have to pay capital gains on that $12,000, most people would still come out ahead.

As stated above, the carryforward period on these credits is five years, so we are working closely with our clients to project and plan to maximize their tax savings over the long-term.

We have a listing of film credits inventory that has already been audited by the state of Georgia. Please contact our office today to see if these film credits will make sense for you.

Zachary Collins, CPA, is a Senior with our Business & Tax Advisory Group. He can be reached at zcollins@antarescpas.com.