Section 181 is Law Again!
Section 181 is law again.
That’s right! There is no more waiting, wondering or debating. Yesterday afternoon, President Obama signed legislation which extended unemployment benefits, income tax cuts and…extended Section 181 until December 31, 2011.
We imagine that we will be getting a lot of questions about how 181 actually works (it’s been awhile) with investments in qualified film and television productions. So please feel free to search for past posts on our site email questions josh@lawyer4musicians.com. We can answer general questions but remember, we are not your lawyer or CPA (yet).
Lawyer 4 Musicians 
I’m producing an ultra low budget feature, Desperate Acts of Magic, and I’m funding most of it myself. I’m directing and producing so I’m certainly an active investor. We started shooting this year. Can I take advantage of section 181 for myself as a sole proprietorship, or do I need to set up an LLC, and invest in my own film in order to take advantage in 2010? I know I need an LLC for other investors to take advantage of 181, but what if the investor is yourself?
Your investment into your own film definitely will qualify for a Section 181 tax write-off. However, to do this properly you need to use part of your budget and hire a qualified accountant & attorney who understand Section 181. Personally, I’d never take the risk of creating a feature film without a proper legal entity.
Your accountant needs to issue you a K-1, which demonstrates to the IRS how much of your personal money was invested into the making of Desperate Acts of Magic. This K-1 is attached to your 2010 tax return and serves as proof to why a percentage of your income should be exempt from taxation.
While there is nothing in the law that states you can’t do this on your own without a legal entity, without the aid of an accountant and without the advice of an attorney you risk having the entire tax credit disallowed if you don’t have competent professionals structure your business correctly and prepare your legal & tax documents for you.
Well said Justin!
Everything is qualified by the need for a production itself to be a qualified production. How you handle your investments and investors is between you and your accountant, but assuming your project qualifies, a participant in the production who invests can utilize 181. If you need help setting up the entities for yourself or your investors, please email me at josh@lawyer4musicians.com. For obvious reasons, the foregoing does not contsitute leagl advice for which you may rely.