What is the Section 168 k Film Deduction?
Until the passage of the Tax Cut and Jobs Act, tax deductions for television shows and movies were under Section 181 in the federal tax code. That has been replaced by Section 168 k, a new set of laws that provides for a 100% tax deduction for television series and feature films that are in their first year of distribution.
As the entertainment industry has changed, the provisions in Section 181 became outdated. Section 168 k represents advancement in tax law, although it is more complex compared to its predecessor. And while it will mean a greater commitment to learn the structure and effects of the new tax law, including retaining the proper law firm to oversee the paperwork, the advantages can be considerable.
But does your production qualify under the new tax law? And what about your investors and how it affects them? The answers to the commonly asked questions about Section 168 k are as follows.
Qualifications for Deduction
For your television series or feature film to qualify, it must meet the requirements for being a proper TV series or feature film. Plus, it must be in the first year of distribution. After the first year, another set of laws will govern any tax deduction that is applicable. The deduction applies to those recognized as investors in the production, so they can take advantage.
Another qualification is that the feature film or television series must be based in the US. This means that productions which are based in countries outside the United States do not qualify even if the investors are currently residing in the US. This means that the company which makes the production must pay their taxes in the United States, even if the film or TV series is filmed in another country.
Can Past Productions Which have been Filmed, but not Distributed Qualify?
The answer is no. Only productions that have yet to start filming will qualify under Section 168 k. This means that having a production which has completed filming, even if it is sitting on the shelf and not seen by anyone cannot qualify. This only applies to feature films or TV series that went into production after Section 168 k went into effect.
Other Qualifications Under Section 168 k
- No Minimum or Maximum Budget Size
- No Maximum Number of Feature Films or Series
- State Deductions for Film and Television Series Still Qualify
- Projects Must be Filed with the Security Exchange Commission (SEC)
There is no stated minimum length to the film or TV series as indicated in the new law or by the IRS, but there is a distribution requirement. By Screen Actors Guild definition, a feature film is 75 minutes in length in the US. But shorter films may qualify if they meet the distribution requirement.
Keep in mind that investors can take the deduction for a qualifying film or series, but only if it is distributed by 2023 under the new law. It is advised that you hire an experienced law firm to provide the proper guidance in following the requirements under Section 168 k.