Clients Buying Film Tax Credits

From the Wall St Journal Wealth Adviser we read: 

Voices: Jini Thornton, on Clients Buying Film Tax Credits

Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Jini Thornton is chief executive of Envision Business Management Group in Atlanta.

Everyone acknowledges that we have to pay taxes. But who doesn't want to pay less? Advisers can help their clients who have a large state tax bill offset those taxes by buying tax credits from the film industry.

These tax credits are given to people in the film and TV industry as incentives to come into a particular state and make their movie or TV series there. Producers are able to sell these credits to general business owners or individuals who are looking for tax strategies to offset their state taxes. They then use the money from the tax credit sales to fund their projects.

It's important to note that these are state tax credits, which can vary from state to state. In Georgia you can buy these tax credits for about 80 cents on the dollar, and then use them to get a dollar credit. The good news is you can buy as much as you need, whether that's $10,000 worth or $100,000 worth. However, there are a couple things to keep in mind.

These credits are sold through a broker, and it's very important to have a reputable broker who can facilitate the sale of tax credits between film and television producers and private individuals. The reputation of your broker is critical, and it is important that advisers do some research and talk to their peers to see who they use and can recommend. If you're buying from a broker who is not reputable, the consequences can be very severe to your client.

Therefore, you need to make sure the TV or film producers meet the state requirements to receive film tax credits. To that end, when you purchase tax credits, the producers must provide a comfort letter from an independent CPA firm. These letters basically say, "We've reviewed this, everything is in line. You should feel comfortable being able to purchase these credits." It's the responsibility of the filmmaker who is getting ready to sell their credits to obtain that comfort letter showing that all the paperwork has been filed by the state.

Generally there is a minimum amount of tax credits, set by the production companies or brokers, that you will have to buy. For example, you may have to purchase at least $5,000 worth of credits. So be sure that your client has the available cash to purchase whatever minimum is required.

This is an underused strategy that other advisers may not know about, and a great tool to give you a competitive advantage over your peers. It keeps your current clients happy and attracts new clients looking to save on their tax bill.