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09 09 2009 Massachusetts Tax Credits Presentation

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Massachusetts Film Tax Credits Presentation

Massachusetts Film Tax Credits Presentation

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  • 1. Massachusetts Film Tax Credits
    Irene Wachsler, CPA, MBA
    Tobolsky & Wachsler CPAs, LLC
  • 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
  • 29. Irene is a managing member of Tobolsky & Wachsler CPA’s and is responsible for the Audit Practice.  In addition to taxes, the firm specializes in performing audit / agreed-upon procedures for the Massachusetts film tax credits and has performed a number of agreed-upon procedures for productions including motion pictures, television series, documentaries and commercials. 
    Irene also performs audit, review, and compilation services for the not-for-profit sector.  Irene received her Masters degree in Business Administration from Babson College. 
    Irene worked at Deloitte & Touche LLP.  She also worked in the high-tech, banking and non-profit sectors.
    About Irene Wachsler, CPA, MBA
    Tobolsky & Wachsler CPAs, LLC ● www.milliecpa.com ● (781) 883-3174
    29
    Recent AUPs:
    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