It’s a wonder: R&D tax credits for the film and television industries

By the engineering tax services.

Of all the arts, the film and television industries are the most technology-dependent. It is therefore not surprising that it is the forms of creative activity that can benefit the most from research and development (R&D) tax credits.

Provisionally created by Congress in 1981 as research and experimentation credits, R& D tax credits are now permanent federal and state tax incentives designed to stimulate innovation, technical design, product development and improvement, and to keep the United States at the forefront of innovation. These tax credits reimburse companies that develop new products, processes or inventions and offer a significant percentage to the company for qualified research activities and qualified research expenses.

The problem is that many executives in the film and television industry are unaware of the substantial tax credits available to them, or do not understand which activities qualify. Think of the addiction of movies and TV shows to special effects alone, after the 1977s. Star wars revolution that unleashed dazzling special effects on enthusiastic moviegoers around the world. In addition, the film and media industries are constantly investing in new technological advancements which can take the form of improved camera lenses, sound recording technologies, and lighting systems. Production companies can save substantial amounts simply by claiming these tax credits.

There is a company specializing in helping film and television production companies to benefit from R&D tax credits: 1913 Media Group, which describes itself as “a vertically integrated film and television studio focused on the creative development and financing of pre-sold film projects.”

“We do a tremendous amount of financial engineering as part of our film production,” said Joey DiFranco, President and Chief Operating Officer of 1913 Media Group. “WeThey are project engineers who design film productions for tax purposes, and the use of tax credits is one of them. Big studios like Marvel are big financial engineers, but we’re bringing that knowledge to the independent film space. We found a sweet spot for this level of engineering: the production base of less than $ 10 million [independent films that cost less than $10 million]. No one in our space benefits from incentives like R&D tax credits. Our job is to ask our creative clients, “How do we remove the barriers? This is why we offer financial engineering such as the R&D tax credit.

DiFranco cited several examples of where film and television production companies could use R&D tax credits. He explained that each movie is represented by its own short-cycle LLC, which shields the parent organization (Marvel, for example) from liability.

“Filmmakers are constantly undertaking technology development, software development, and process development, not necessarily for a specific movie, but for the parent organization,” he said. “This is classic research and development for better processes and products. You literally reinvent the wheel for every movie with visual effects, practical effects, and custom gear and gear. You go through an ideation process that is traceable, which you return and use on other productions. Our clients are always inventing ways to create some type of cinematic print and then applying them to these different projects.

He added, “For example, you could develop new check-in / check-out software for your movie. You can license beyond that and sell your new software tool to others in the film and television industry. There are very reproducible R&D tax credits, but manufacturers don’t realize this. This is the advantage of working with a partner like Engineering taxationservices, who are experts in the field.

If you work in the film and television industry, how do you know if you are eligible for R&D tax credits? Just take this simple four-part test set out by the IRS:

1. Authorized objective: Activities should relate to components, functions, performance, reliability and quality.

2. Technological in nature: The activity carried out must be fundamentally based on the principles of physical or biological science, engineering and computing.

3. Elimination of uncertainty: The activity should aim to uncover information in order to remove uncertainty about the ability, method or design of developing or improving a product or process.

4. Experimentation process: The taxpayer must engage in an assessment process that can identify and assess more than one alternative to achieve an outcome. This may include modeling, simulation, or a systematic trial and error methodology.

“If you’re in the film and television business, don’t leave money on the table,” DiFranco said. “These millions of unclaimed dollars could go a long way towards financing your next production!