Film production LLC question

[Steve House]

Bottom line ... the LLC may or may not be good for you from a tax standpoint, talk to your accountant about that. But for absolving you from liability if you screw up somehow, fugedfdaboudit.

[Ben Tolosa]

Originally Posted by Steve House

For protection against lawsuit, a couple of insurance policies such as liability coverage and errors & omissions insurance will provide more protection than will an LLC, from what I understand.

OK, that is good to know. Thank you very much for your input!!

Kind regards,

Originally Posted by Chris Davis

That's usually the first reason anyone brings up when they think of forming an LLC, after all the first two letters mean "Limited Liability" so it protects me from getting sued, right?

That's where I have a problem with the knee-jerk reaction to form an LLC. I'll give you a simple example: You are a lone gun shooter working on a wedding video. You place light stands near the entrance of the church to get perfect lighting as the bride and groom race out. During all the bustle, grandma trips on your light stand bringing your hot light down on a group of distracted bystanders. There are injuries. But you have an LLC, so they can only sue your business, right?

Wrong.

You negligently placed the lights where you knew there would be a bustling crowd, so the lawyers sue you and your businesss.

That's why an LLC does little to protect a one-man business - because when "the business" does something, that really means that you do something, because there is no difference between you and the business. You are always personally liable for your actions.

Anyway, in the case of making a film, I think forming an LLC would be wise because while you may not have employees, you will probably have other people working on the film with you. An LLC would protect your personal assets from their actions.

Steve is right, no form of business entity is a substitute for liability insurance. I would even go further and suggest getting a nice big umbrella policy for your personal assets just in case.

That is very good advice. I truly appreciate it very much!
Thank you!

Originally Posted by David Barnett

Yeah, you're definitely looking to get insurance, in addition to any form of business structure. As Chris said, if an actor, crew member or passerby trips over your light stand, camera tripod, or a cable, they could potentially sue you. I don't think being an LLC alone leaves you free from liabilities. In fact, I think the reverse would be better, having at least insurance first, then being an LLC. But you should look into both. Research insurance policies specific to film production.

I will look both. This is great David, thank you very much for this input!!

Best Regards,

Originally Posted by Steve House

Bottom line ... the LLC may or may not be good for you from a tax standpoint, talk to your accountant about that. But for absolving you from liability if you screw up somehow, fugedfdaboudit.

Definetely thing I did not know. Thank you for teaching me!

Have a nice week and weekend Steve!

[Jarred Capellman]

I actually am going through this right now as well. Had a movie company since 2001, which was more a hobby company up until about a year ago when I started getting back into it film making. This year I always planned on turning into an official company, I trademarked it in July and got all my IRS stuff back a couple weeks ago. So far we've started on 2 movie projects and did some After Effects/Premiere work for 1 client.

Being in IT as well, it opens up some new avenues that a typical film/video production company wouldn't have. In working on my projects I've written several C# apps to assist in my productions. Technically I could start selling them under my LLC.

For me forming the LLC was mainly for legitimacy with clients and to open you up to quite a bit more deductions. Like my camcorder or other equipment purchases.

I think it's an amazing time to be alive. Being born in 1985, I have been able to grow from my dad's Tandy 1000 connected to a local BBS when I was 5 years old to an 8 Core system connected to the whole world and being able to share stuff I come up with.

[Shaun Roemich]

Originally Posted by Jarred Capellman

and to open you up to quite a bit more deductions. Like my camcorder or other equipment purchases.

I can only comment on a Canadian tax perspective but being a sole proprietor instead of a LLC has in NO way interfered with my ability to aggressively write off capital purchases, consumables, vehicular or office expenses. To the best of my knowledge (again, with a Canadian perspective), the status of your company does not interfere with your ability to write off legitimate business expenses ALTHOUGH it may greatly affect your ability to collect certain taxes.

[Jarred Capellman]

In the US an individual/sole proprietor has only 25 deductions he or she can write off while an LLC has 200 deductions. My CPA was going over all of them, it's not for everyone, but it certainly will help me next year in Tax returns.

[Chris Davis]

Originally Posted by Jarred Capellman

In the US an individual/sole proprietor has only 25 deductions he or she can write off while an LLC has 200 deductions. My CPA was going over all of them, it's not for everyone, but it certainly will help me next year in Tax returns.

Does that apply only to Maryland state tax? Because there is no such rule that applies to federal taxes. Could you name one or two of the deductions for LLCs that are not available to sole proprietors? The only one I'm aware of is the ability to deduct 100% of health insurance premiums - and even that one is easily avoided by the sole proprietor by setting up an HRA.

In fact, a sole proprietor has a lot of tax advantages over an individual forming an LLC. Here are a few:

1. Easier taxes (which means less hours, or a lower tax perparation bill)
2. You can hire your kid and pay no payroll tax (also - your kid's first $5000 of pay isn't subject to federal income tax, plus in my state it means no unemployment tax)
3. Health Reimbursement Arrangements (HRA) - make your spouse an employee and reimburse him/her for your family's health insurance premiums. It may sound confusing, but this is a $5,000 a year tax benefit that is available only to sole proprietors.

As far as legitimacy with clients... I've never had a single client ask me what kind of business structure we have.

[Jarred Capellman]

I don't recall what deductions are available for an LLC, my CPA went through them briefly. I don't know a lot about it yet, I just got a CPA about a week ago.

My big question I have now, not to steal this thread is what is considered "active" from the IRS's perspective. This year I had a ton of startup costs between getting a new camcorder to new computers, servers etc. I was actively filming 2 movies throughout the year (starting in January through till October) and during the month of November and December I was working on a Client project.

[David W. Jones]

Originally Posted by Jarred Capellman

I actually am going through this right now as well. Had a movie company since 2001, which was more a hobby company up until about a year ago when I started getting back into it film making. This year I always planned on turning into an official company, I trademarked it in July and got all my IRS stuff back a couple weeks ago. So far we've started on 2 movie projects and did some After Effects/Premiere work for 1 client.

For me forming the LLC was mainly for legitimacy with clients and to open you up to quite a bit more deductions. Like my camcorder or other equipment purchases..

Deductions have nothing to do with being an LLC, I am a sole proprietor and deduct my business expenses just like any business would. Equipment, vehicle, utilities, and so forth are business expenses. And where you accountant pulled out a number of only 25 deductions is nonsense. The way the IRS looks at things is... Say you work a full time job, and start this business, you purchase all this film gear and write it off as business expenses, and spend X amount to make a film, your business shows a net loss on your Taxes, and the same next year, and... Get the point? The IRS sees this as a HOBBY and disallows further business deductions. A business needs to show a profit over time!
If you already have employment and start a business which shows no profit over time, the IRS sees this as an attempt to fund your hobby via an illegitimate business front.
As Chris mentioned, an LLC was not right for my business as well, remaining a sole proprietor far outweighed forming an LLC. And as far as legitimacy with clients, in my book this has nothing to do with being an LLC or what have you, and everything to do with building relationships!

All the Best!