IRS regulations regarding tax deductions for documentary filmmaking

Does anyone know about an IRS regulation disallowing documentary filmmakers from making tax deductions during the course of their production, because documentary filmmaking is considered a hobby and not a business, intent on making a profit?

We've been in the documentary business (courterfilms) for more than 40 years and take all appropriate deductions. I have read about the Story lawsuit, but have not seen their tax returns. Of course you can take deductions if you do it right. Check with lawyers and accountants to be sure you are.

Here are some principles:

1. You can have a company that receives income that pays the expenses of making the film. It has to be funded from somewhere. For instance, a foundation gives us money to make a doc. We take all expenses and pay salaries--including ourselves. At the end, all the money is gone, but we have legitimate income from working on the film and pay taxes on that. If we had $100,000 for making the film and paid ourselves $25,000 and had $75,000 of expenses, the $75,000 are deductions. A "C" corp is different from a Sub-S, but in our case we use the latter and any extra left in the budget is taxed to us. If we end up with more expenses, we can write off the loss on our personal tax return.

The key here is you can't have losses for X out of X years.

In the case of the lawsuit, the filmmaker was also a lawyer with one assumes income from that practice. If she made a film for $300,000 and deducted that full amount from her income as both a filmmaker and an attorney and never showed a profit from filmmaking during that time, her filmmaking would be declared a hobby. This would be the same if she was deducting her horse stables or antiques business etc.

2. You can work within your own Sch. C. I am a writer. All my writing income appears on my Sch. C. I can deduct research trips to Europe, my assistant's salary, computer expense, ads, publicity etc. But again, I have to show a profit every few years. I just can't deduct the trips and goodies and not sell enough books to cover and show real income/profit. In my case, I sometimes have big sales spread across many years, but the sales are large enough to show the IRS that my writing is a legitimate business and not done for vanity or self-publishing.

Keep track of every single receipt and how you are financing your film. Pay yourself a salary. Run it like a business--which it is.

Thanks, Gay (Courterfilms)--and this advice goes for free-lancers as well.

Have a great day ☼

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