Today on the Dream. Work. Film. Podcast we are going to talk about how to specifically keep track of your Expenses for your taxes. I’m talking actionable steps to help you get organized so come tax time, you or your CPA can send your Schedule C, Schedule SE, and Form 1040 off to the IRS without a second thought. Now, if you haven’t had a chance to listen my previous how-to podcast that covered how to protect yourself from crazy taxes where we dove into the tax process and different business structures, I highly recommend it before tuning in today. It’s going to help you in understanding all the financial jargon I will be using today on the show.
First things first. You ALWAYS need to save your receipts, invoices, or order forms from ANY purchases you make. Some people say receipt you have under $25 isn’t necessary to hold on to, but guess what - I would save it anyway. Why do you save receipts? Well, incase the IRS red flags you and decides to audit you and your little film company. Scary, I know, but a LOT less scary if you are ready and organized. Go buy a $6 organizer from Target and start filing away those receipts.
So let’s get specific. There are multiple categories that you need to organize your expenses into. For me, I put them all into a Google Spreadsheet in my G Drive. That way, if my computer ever crashes or is stolen. I will still have that information no matter what. I just log back on to my gmail account, and click right on over to my G Drive, and voila, there everything is, untouched. So I recommend you either take notes, or work along with me and create that spreadsheet as I go through each category of expenses and what exactly falls within that category.
So the first category is OFFICE SUPPLIES. What does that translate to in terms of film? Well, you can put your purchases of printer paper and ink for all those scripts and audition sides here, you can put any envelopes and stamps you’ve purchased to send your glorious film off to festivals in this category. I’m talking pens, paper clips, post it notes, index cards for storyboarding, any tangible items that you come in contact with in your “office space” that need to replenished or replaced frequently.
The next category is OFFICE EXPENSES. Now this is different than the office supplies in the sense that are not as tangible. So any office equipment, recurring monthly office bills like heat or electricity, or a landline if you are from the stone age, fall under this category. Again, the LESS tangible and replaceable items fall under this category. A big one for this category is your computer, any display monitors, or any external hard drives you have purchased within the tax year. These three things fall under the office expenses category, but they ALSO need to be depreciated, but we will get into depreciation later.
The next category is GAS MILEAGE. Meaning keeping careful track and logging the miles you drive in your car from location to location while you film. The IRS really likes for taxpayers to have a log that is broken down by the date of the drive, the departure location of the drive, the destination of the drive, the purpose of the drive, and then finally the total miles logged. I know it sounds high maintenance, but make it a habit at the end of each week and it won’t. The way I do it is pull up google maps on my computer, enter in my destination, then get directors from my departure location, and then google maps does this really cool thing where it will tell you the total miles of your trip. I copy that number and paste it into my mile log, and BOOM I’m done. So why so specific? Well, right now the IRS give taxpayers 57.5 cents back on every mile driven in the name of business. Pretty awesome right? for 2016 the rate is 54 cents back for every mile. I am ALWAYS driving. Especially between the Twin Cities and Chicago for wedding photography gigs, and you better believe I am writing off every mile in the name of my film company. So start logging miles right now, and save yourself a huge chunk of change.
The next category is MEALS, TRAVEL, AND ENTERTAINMENT. What does this mean in terms of your film? Well any launch party expenses such as the venue rate, open bar, food, decorations, napkins, alcohol can be put under this category. Truly, any community event or party that is open to the public and pertains to the creation of your film can be written off 100% in full. If it is an exclusive party with just your cast and crew, like a wrap party or cast party, then only 50% of the expense can be written off. Also, any tickets to film festivals, indie movies, etc can be written off at 50% here as well. So make a note in your spreadsheet on the type of party so you can help yourself or your CPA out come tax time.
The next part of this category is meals. Any meal in which your film project is discussed in terms of business, so if you took your production team out to brunch or dinner to talk about your next move or go over a game plan, this expense can be written off at 50%, make sure you make note of WHAT is discussed also. Again, specificity is a god send if you get audited. So I’ve come into Chicago to meet with my writers as well as had them up to my cabin to write the 2nd season together. Since we didn’t discuss business the ENTIRE time, I mean we were on a beautiful lake in the fall for 4 days we definitely had a combo of work and play, I kept track of my expenses and wrote of 50% of my total purchases. Another big thing is any time I go out for a coffee or tea and do any film related work in some random coffee shop, I always write that expense off at 50%.
The final part of this category is TRAVEL. So in terms of your film. Any time you rent a hotel for a distant film shoot, any time you buy a plane ticket to attend a film festival, any form of expense that relates to TRAVELING in terms of your film can be written off. So an example being we attended the Indie Series Awards in 2014 and I was able to write off 50% of the cost of my plane ticket to California and 50% off of the cost our hotel.
Alright, our next category we need to keep track of is MARKETING EXPENSES. The items that fall under this category are things like business cards, posters, fliers, any money you spend on a Facebook marketing campaign or ad boost, any money you spend on submitting to festivals, AND any incentives you purchased to reward crowdfund supporters. Truly anything that relates to getting your project out in front of people. So for me, I spend about $250 a month advertising on Facebook for my business. And you better believe I write all of that off.
The next category is UTILITIES. So the way that utilities work is any, you guessed it, utilities such as gas, internet, heating, electric , that you pay for in your place of business you can deduct. NOW things can get tricky here because let’s face it, most of us aren’t lucky enough to have an office away from our apartments or parent's basements. So what you need to do is the calcuate the SQUARE FOOTAGE of the area in which you deem your “work space” in your home. From there, you take the square footage, and then the overall square footage of your place of residence, and create a percentage in which you define how much of your utilities you pay for are actually going towards your work space. So for me, I work in a little room with a desk, glamorous I know, that’s where all the movie magic happens I swear, so this little room takes up about 20% of the overall square footage of my place of residence. So I can deduct 20% of my in-home utilities towards my business, in essence all the work that happens on my computer within that room. Now if you have an office away from your home, I’m so jealous of you girl BYE, no just kidding, you get to deduct 100% of those utilities. And again, this is internet, electric, heating, gas, water, etc.
Another interesting thing that falls under this category is any DOMAIN NAMES or WEBSITE HOSTING you pay for on a monthly or annual fee that are in conjunction with your film, those things can be written off in FULL under UTILITIES. The other biggie for this category is the IMDB Premium membership can be written off here, and if you want your film up on IMDB which you definitely do, this is going to cost about $144 I believe, so write it off!
Okay, moving on to our next category. I hope you’re not asleep because things are about to get super fun. Haha, I wish, I know all this information may not be riveting, but it is significant in bringing legitimacy to your filmmaking. Okay, let’s carry on.
The next category is LEGAL AND PROFESSIONAL SERVICES. So any entertainment lawyers you hire, any costs accrued with forming your LLC through places like LegalZoom or directly to the state, even the CPA you may hire to help you come tax time. All these people or business that aid in the creation of your film are able to be written off against any profit you accrue through crowdfunding or private funding. So every year when you file your Annual Report if you are an LLC, that $25 filing fee or how ever much it may be, can be written off here. If you hire a graphic design company or marketing company to help you with your film, this is where those expenses can be written off. Got it? Good.
The next category is CONTRACT LABOR. So this category is dedicated to any independent contractors you hire throughout the tax year to help make your film a reality. I’m going to go out on a limb and guess that most indie filmmakers starting out are not going to hire “employees” under their LLC to make their film. This is a very complicated process, and instead this category CONTRACT LABOR can make the process a lot simpler for you. When you hire people as independent contractors it creates less paperwork for you come tax time. Be sure to go to the IRS website and download the proper forms to have anyone who is working on your film fill out. These forms include the W9 and the Form 1099 - MISC. If you paid someone who is working on your film $600 or more their services, a Form 1099-MISC (PDF) needs to be completed, and a copy of 1099-MISC (PDF) must be provided to the independent contractor by January 31 of the year following payment, this is of course for THEIR taxes. You must also send a copy of this form to the IRS by February 28. I’m including that link in the show notes for you, so be sure to check it out. So to be more specific, this category includes the boom operators you hire, the DPs you hire, any individual graphic designers you hire, any production assistants you take on and pay, bottom line any individual that you pay that is a part of creating your film falls under this category.
The second to last category I am going to cover today is RENT. Again if you are one of the lucky few to have an office away from home that you rent, then you can write this expense off. I had a photography studio for 6 months in Minneapolis and I was able to write off the $325 expense for every single one of those months. Again, this is only 100% deductible if it is a designated office or location used for the creation of your film.
And the final category is DEPRECIABLE ITEMS. Or as I like to call the BUSINESS ASSETS. These are the items that usually are the biggest investment for you as a filmmaker. For this is my Canon 6D, my Canon 60D, my lighting kits, my audio equipment, my Mac Book Pro, my Thunderbolt Hard drive, you get the picture. Pretty much any expensive gear that will be lasting you more than a years time is put under the DEPRECIABLE ITEMS category. These are all considered business assets that have to be depreciated over several years unless you invoke Section 179, in which you can write off the ENTIRE expense of that item within that tax year. I’m not going to save face, this category overwhelms me and it is the number one reason I hired a CPA to help me with my taxes. With all my business assets, I wasn’t sure what was the best option for me and how to go about “depreciating” these items, because they all have different rates at which they depreciate. So, put these purchases in this column regardless for your CPA to help you with come tax time.
WOOF. Alright my friends. I know this was a lot, believe me. But I am hear to help clear away those cobwebs, to make this whole tax process thing more navigable, and to provide you with a down to earth take on how to go about saving your but when it comes to getting taxed as a budding filmmaker.
Our next Dream. Work. Film. How-To podcast I will be having the lovely Ashley on to ask me specific financial questions when it comes to getting your first film project off the ground. What to pay people, how to write budget for yourself, all those big steps that can seem impossible, but really they are just a tiny mountain compared to the joy you will feel when you finish your first film project.