SCOTT CPA’s: From Set to Savings: Film Production Deals That Cut Your Tax Bill
Welcome to today's episode of Slash Tax, where we uncover smart strategies to slash your tax bill, unlock incentives, and invest strategically to build wealth. I'm your host, Heidi Henderson, and today we're exploring a fascinating out of the box investment opportunity that combines tax strategy with the magic of the movie industry. I'm joined by David Scott, who is the managing partner of Scott CPAs, a California based, family run CPA firm, along with John Langford, who is the founder of Three Legends Entertainment. David and John are not only brother in laws, but they have formed a powerful partnership that merges strategic tax consulting with film production investments. This really unique collaboration offers accredited investors and high income earners a way to diversify their portfolios, participate in the excitement of the movie industry, and enjoy some significant tax benefits at the same time.
Heidi:If you've ever wondered how to make your investments work harder, not just through returns but through real tax savings, this episode is a must listen. So let's dive in! So after that introduction, John, David, thank you so much for joining today. I'm so appreciative of you guys being on the podcast and looking forward to diving into both of your areas of expertise.
David:You're welcome. Thank you, Heidi.
Heidi:Okay. So kind of fun. You guys have an interesting background. So David, you are the founder of Scott CPAs, correct?
David:Well, actually my father founded the company, but I am the second generation with my brother as the partners.
Heidi:Okay. That's fantastic. So it's a family run business.
David:Family run business. Yes. And it's grown over the years. It was founded in 1979 and we've grown significantly over the years.
Heidi:Yes. Amazing. Well, that's pretty cool. You know, it's fun because I always talk about the fact that I work with my sister. She's one of the partners here at our company and I've worked with her now for about sixteen years.
Heidi:So it's always interesting with family dynamics, but it's amazing when you can make that work. Yes. Very cool. So then that brings into the equation John. And John is actually with Three Legends Entertainment.
Heidi:And John, how did you end up as part of the family?
John:Well, my sister is David's wife. So I wouldn't say I just ended up there. Know, they met and there's a whole story behind that. And we became brothers by marriage. But the great thing is that David's actually a really great guy.
John:And it's great having someone that's a brother-in-law that feels more like a brother than someone you have to deal with during holidays and whatnot.
Heidi:Well, that's nice. David, that should make you feel good. Yes, John, I think you're lucky if that's the case.
David:It does. It does. In fact, one of those holiday meetings brought John and I together on the topics of tax. I was impressed with John's skill and knowledge in the area of entertainment. We really bonded talking over the unique opportunities in that industry and it kind of brought us together at a family event years ago.
David:Here we are today.
Heidi:Absolutely. Well, that's exactly why we're here. So on SlashTax, what I love to talk about is just bringing different tax strategies and opportunities to investors. Accredited investors typically are high net worth individuals looking at ways to continue to increase their family's wealth and reduce their income tax and invest in options that they might find interesting or things that they're passionate about that can also have really nice returns. And so what is really interesting is that, John, you have a really unique background in the film and production industry, right?
Heidi:Tell us a little bit about that.
John:Yeah. So
David:I have kind of
John:a mixed history in entertainment. When I was a teenager, becoming an adult, I got scouted for modeling and acting and I lived in Northern California. Grew up there. I was born down here, grew up there. And I actually ended up moving down here because I had some agencies that wanted me to give it a try.
John:I gave it a try for about three months and then quit. I decided acting and stuff was not for me. Not that I didn't do well, just that I didn't really like the actor environment too much or at least the budding actor environment. But then I started a little bit later in life getting back into it. And I had the opportunity to work on the back end of films.
John:I worked on a bunch of shows, Beverly Hills nine zero two one o, the reboot that they did. Melrose Place, the reboot that they did. I worked on Ocean's 13 that they did in the big studio. I believe it was 16 on the Universal lot. I worked on the show weeds, nip tuck, and many, many more.
John:I also worked with a lot of in that job, worked with a lot of celebrities, of personally one on one with some stuff that I was doing at the time. And I kind of went away from that a little bit and then got back into it again. And since then, I've been working with a lot of big producers in Hollywood and stuff like that on movie productions and also kind of side ventures that all of them are involved in as well. So one of my partners, he owns the TCL Chinese Theater in Hollywood, which is about the most famous theater you can think of when it comes to movies. That's where they do all the big Hollywood premieres.
John:They shut down the Hollywood Boulevard in front. I've seen some really cool kind of setups from that, especially like the Star Wars one. Yeah, and then he also owns the Dolby Theater, which is where they host all the Academy Awards whatnot. So I'm involved with helping to produce shows there as well as movies and film.
Heidi:Wow. Wow. I mean, that is a space or industry, I guess, that is completely foreign to me. So I have no background or really experience in production or filming or movie premieres other than, of course, watching movies.
John:I think we're getting plenty doing it right now.
Heidi:So I'm like, Okay, John, I want to go to the next movie premiere. Come on.
John:If you're down here, if there's a premiere happening, I will definitely invite you.
Heidi:I love it. Okay. Okay. Put me on the list. But now, connect the dots.
Heidi:How does all of that then connect to the CPA world? So David's here as our in house expert on the CPA tax side. So connect the dots for our listeners between film production and how this can relate to tax.
David:So as you well know that investors and people that are, we'll say, go getters are always looking for great opportunities, to utilize or to deploy funds, to make money, to ideally have some sort of tax benefit. And generally, they don't just want the tax benefit of spend some money. And if I make a loss, I get a deduction because that's that's kinda ho What we're doing in this particular space due to IRC one eighty one, and there's more to it, I won't go overboard on the technical side, at least on our first pass. It allows an investor to invest into a film, a certain size film up to, we'll say, 20,000,000. It's 15,000,000 in most cases, but 20,000,000 in the right location.
David:And then deduct or we'll say write off their investment times a multiple, typically a three to four multiple due to their amount at risk in the, we'll say invested or there's a term called at risk that they have into the movie. And it allows for a large deduction. I mean, right now, most people are aware of if I buy an SUV and now with the big beautiful bill, I can write that off potentially all in one pass. And so that kind of motivates people. But here in the movie industry, there's even beyond that.
David:And so for the right investor, you're able to put in a dollar and deduct $4 potentially. Now there's a lot to it, but that's really that that is a a very exciting opportunity. It motivates people, to invest in film, and that's one of The United States' great outputs is the film industry. And so we need to protect that industry and invest in United States films.
Heidi:Wow. Okay. So let's dive into that a little bit because I love getting into the meat of it. And the accountant in me is like, Okay. I want to understand these numbers.
Heidi:Why can we invest money into or funds into film production and have a larger deduction? What is the reasoning behind it?
David:So what they're doing is they're taking their estimated production costs. So when you're putting a film together, it hasn't been necessarily filmed yet, right? So you're an investor generally before the film has actually begun filming. And so they are putting together the cost of the actor, the cost of location, the cost of all the fees based on where you're doing the film at, the cost of just on and on equipment costs, personnel, etcetera, lighting. And so they have these estimated costs for the film.
David:And then you have, additional, we'll say, agreements that you would be involved in as an investor to make sure that all the costs are paid, etcetera, for into the future. And so you have a large pool of costs that are estimated at the beginning. And so that allows if those costs are strictly adhered to as far as what the costs are, which which they're typically done by a reputable production team, you're allowed due to IRC one eighty one to deduct your portion of those production costs as a materially
Heidi:participating investor. There and we formed
David:the campaign. Year. So, that is a the, we'll say the appeal of the for the investor that they can actually invest in the movie and then put whatever amount of money in, maintain their role as a materially participating investor, and take a deduction for the amount. Oh, we're live. I see him.
Heidi:You back?
David:And furthermore, Can you guys hear me? Shoot. Breathe. The great thing about IRC 01/1981, it allows the investors to be a part of the pool of the estimated costs for the film. What that means is, let's say I put in $100,000 or we'll just keep it simple, dollars $1 into the production, and if there's an estimated cost of X amount that are beyond my dollar because there's also additional investors, there's the production development team, etcetera, I'm able to deduct a multiple of that dollar I put in due to the future costs in that investment.
David:And so when I say future costs, I mean the first year they're not incurring all the costs. They have costs estimated for the entire film production. And so as an investor, I can take a piece of that in the first year with IRC 181. And similar to when you deduct on an SUV as an example, just to keep it simple, you're gonna have a longer term value of the car for five years, we'll say, but you're able to write it off in the first year. So with a movie, you have these costs that may go over the course of a year or two, depends on how fast they do the film, etc, and then ongoing potential costs.
David:And so they're able to deduct those all in the first year and the investor could take advantage of that and that's huge. That's a huge unique area because that motivates an investor because right off the bat, even if the movie isn't successful in the sense of the term of, Hey, I made a lot of money on it. I am successful just by making an investment in that movie. It is a unique and special opportunity to support The US film industry as well as make money in the sense of tax savings on the investment as well as have a big opportunity for a large upside on the movie itself.
Heidi:Wow. Okay. So you invest in you become what? I'm assuming you're becoming a limited partner in kind of the partnership that's funding the production?
David:Yes. We'll say that's true. There's a couple of things. So one, you'd be automatically tactical do we want to do you want me to talk about the passive and non passive? Yeah.
Heidi:Yeah. Let's do it.
David:So off the bat, we'll just say there's three types of income. You have ordinary income, you have capital income, and then you have passive income. So there's three buckets. Most investors will say would like this to be an ordinary income activity. And so you have to qualify for that and it's based on, we'll say, your time put into the activity, your, we'll say, the risk, the amount of efforts, etcetera.
David:And that's all calculatable. That's all we give. Mean, we as a firm together, get together, John and I help our investors, anybody that's involved in that to achieve that, to become a materially, or we'll say a participating investor.
Heidi:And is this a hundred hours, so similar to like a solar credit investment? Would it be a hundred hours?
David:About five hundred hours. About five hundred. So it's about five hundred and there's a way of tracking that, etcetera, and the involvement. We're aware of that. We keep them involved and John can speak to that here in a moment on the types of involvement that we're gonna give them right off the bat without them even asking because we realize that.
David:And that is subject to their individual tax preparer as far as their positioning on that, but we would guide them and help them advise them on that. So initially it would be passive, so you don't have to be a materially participating investor. You can just do the investment and take it as a passive loss. Now, the problem is it depends on your tax circumstances and I don't want to bore, I don't know the exact listener here, but we'll say if we get into the, if I have passive income, passive losses are valuable. If I don't, then they may not be as valuable.
David:That's something that we would speak to on an individual case by case basis.
Heidi:Yeah. Right. And a lot of our listeners are CPAs, tax preparers, strategic task advisors, and then also a lot of investors that are pretty savvy. So I know we're getting a little bit into the weeds, but we deal a lot with this on the real estate side when we're dealing with real estate investments and how we're handling whether it's a short term rental, long term rental, or other activity with business versus real estate and then handling how do we offset our ordinary income, which most of our investors are really looking how can we become active to actually offset the W-two or ordinary income. And you all are based in California, so I'm sure many of your investors, as are ours as well, in a very high tax state where at a 40% to 50% tax bracket, this can be really pretty dramatic if, in fact, they can meet the material participation rules.
Heidi:So, yeah, that's interesting. But to your point, even if it's passive, it doesn't mean that an investor cannot necessarily invest in this type of a vehicle, but it would only offset their other passive income. Right? So does that include other gain situation, other investments like stocks and bonds or other passive income they're generating? Would it offset any of that?
David:Well, there's limitations on this because this would be a certain type of income and it's dependent on at the stage, was it ordinary or passive? And that gets in the if they qualify as a materially participating investor, we will guide them toward being an offset to ordinary income because that's really the goal. Now, as far as it being a passive, that's pretty much a default a little bit to passive unless you show otherwise. So we've had many of our investors that John and I have worked with, we've helped them guide them to that, we'll say a reasonable position of being materially participating or I'll just say an MP for my lack of being able to say it, investor. So yes, that's something that's technically looked at on an individual case by case basis and that's why our first move typically with anybody doing that is tax planning And we definitely want them to get with their advisor, etc, or we will give them the tax planning guidance, at least on that matter, or if they want more, we can help them together.
Heidi:Perfect. One other question as it relates to the film incentives, I understand about the 4X deduction because you're allowed to then deduct the production costs. This actually reminds me also of oil and gas investments because you can take a deduction for the total production costs even as those wells are being drilled and everything's coming to fruition. So it creates a large deduction. Are there also credits that apply for film?
Heidi:Because I've heard of film credits before, so I'm curious if there's credits or if it's just the deduction for the cost within the entity.
David:The answer is yes, and it depends on the state that you're in, who you're doing the films in. And those are not necessarily for the investor directly. I mean, benefit the investor, but those are typically the investors that we're working with. We'll say for the production company, there are credits. There are benefits.
David:The K-one investor, they would get the benefits via their K-one, but the actual production company would get the benefits of those production credits.
Heidi:Got it. Okay. So they're capturing production credits, but the investors ultimately are getting more of the pass through losses the active Yes,
David:exactly.
Heidi:Okay. Got it. Okay. So now diving into the second part, John, it seems to me like my first thought as an accountant is like,
John:Are you kidding? What is
Heidi:the risk involved in investing in production of a film? That seems so risky with understanding how successful it may or may not be once it actually goes out to production and it goes out to the markets. So talk a little bit about the second part of this. Is this investment play primarily for the tax benefits and supporting the industry? Or is there an aspect of this that truly can have a big upside?
John:Yeah. So, David kind of spoke to it. You're kind of the the media benefit is is the tax side. Right? So you're already you already have a purpose for doing it.
John:You you already have your benefit for getting involved. As far as film and risk goes, I mean, just like any business venture or any investment, when you invest into something, you know, it could hit or it could miss, or do you know, there's a lot of factors that play into that. You can make a ton of money. You can make no money. You know?
John:That's kinda how films are too. You make a great film. You put it out there. You know? It could, you know, say it took 5,000,000 to to produce that film, and it only brought in 2,000,000 in the box office or it brought in 15,000,000 in the box office and you made a profit, that's always kind of a little bit of a toss-up.
John:But, you know, what we do to kind of compensate for that is is one, if the movie doesn't do well, like you said, you're you're already kind of winning. But if the movie does do well, then you have a potential upside of making money off your investment. And then all you have to deal with that once you do make money is dealing with all that extra money that you're making on the tax end. But regardless, yeah, I mean, how we kind of eliminate some of the risks with these types of investment is we only get involved with well, we are involved and then also we bring in other producers, directors, actors, line producers, everybody across the board that have been doing this for a very long time. They know what they're doing.
John:They put out successful movies. One of my producer partners I work with, Brad Epstein, he was an executive for Disney at Buena Vista Studios. He was an executive for Tribeca Films, which is Robert De Niro's film company. He's produced and a real life and many other films that have all been pretty successful films in different aspects. And that's kind of what we try to bring to this focal point of IRC one eight one investment is to have a qualified and possibly successful film attached to the investment that they're doing in the first place.
John:So we bring in qualified people that have been into the industry and can deliver on producing a film and releasing a film. And so, you know, despite, you know, the ups and downs in the film industry and whether a film does well or not, you can look at both ends and see, okay, right off the bat, I have this benefit, which is great. And then on the other end, it's of like a bonus. If the film does well, then I'm making money and now I have to deal with those taxes on all the money I made off that film or whatever. Yeah, I would say on the tax investor side, there really isn't so much of a risk.
John:And on the film investment side, it's just kind of a cool thing to participate in and be part of the process of the movie. A lot of the clients that we've brought to it, they're not necessarily in the film industry. They're doctors, lawyers, investment bankers, company directors, stuff like that, that have never had any part of the film industry ever in their lives besides maybe going out and watching a movie or watching a TV show and and all that sort of thing. But now they actually get to participate in a film production and and get to be part of that process. And as we were talking about before with kind of the participation part, some of the things that they get from our end from being on the production side is they get, you know, updated on film budgets.
John:They get to see the whole process behind the scenes of what's going on, who are the actors we are talking to and trying to bring onto the film, you know, where's the film gonna shot? You know, we've we've gone even so far as to invite them out to the set to meet the producers, actors, all that sort of thing. That's Because they are investors in the film, you know, ultimately. Right? They've put money into the film, whether they did it for tax purposes or not, they are an investor.
John:So, they get access to all of that. When there's a movie premiere, they'll get invited to that and be a part of that. And it's just kind of a really kinda neat and cool experience. And that risk part of, say, if you're a traditional investor is kind of eliminated because you're already doing it for a purpose in the very beginning.
Heidi:Interesting. Yeah. I mean, you're addressing a lot of the questions I'm thinking of as we're talking, one, about participation. Like, what does that look like? How involved can someone be?
Heidi:Or are they allowed to be? There's probably an interesting balance between trying to achieve that material participation versus maybe not wanting people to show up on set and try to manage actors. Talk a little bit about how you handle that aspect with investors.
John:So I would say I take the approach or we take the approach, we're a little bit more open to those types of situations, right? There's a lot of producers out there where they don't even want to see the investor deal with the questions that they have or the input that they put in, but we're a little bit more open and receptive. I think we're more empathetic to experience side of what this is. Besides the tax portion of it, being involved in a movie, it's an experience. Like I said, for a lot of people that have never been involved in that sort of thing, but always wondered or fantasized about it and stuff like that.
John:And I'm certainly mindful of that. And I know a lot of the producers that I work with and directors and stuff, they're mindful of it as well. So it's kind of a thing where we want them to be happy, even though they're doing it for tax purposes to begin with, we want them to be happy with the experience itself and get something out of it. Just being part of those events, meeting people, seeing kind of the back end inner workings of how a film is made and stuff like that is a really neat thing. I know it's something for me that I find interesting, and I'm sure a lot of people that have their favorite shows and movies and directors and stuff like that, they find that they're gonna find that interesting as well.
John:Yeah. And just having the opportunity that takes them out of their, you know, everyday routine and puts them in a situation that they would otherwise probably never have the opportunity to be a part of. Yeah, absolutely. I think that's a unique experience for investors, you know, they're not, it's not, Not to diss any other type of tax strategies, they're not going out to visit an oil rig for oil and gas or going to visit an auto dealership for their truck deduction or something like that. This is a little bit more interesting.
John:You get to be part of these events and these experiences that people otherwise wouldn't be part of.
Heidi:Yeah, absolutely. No, it's a valid point. How many investors do you usually have in a project? So, I mean, just give us an example of a recent project you had and how many investors were wrapped up in it.
John:Right. So we typically try to focus on they're not cheap movies. They're not studio movies. So on a studio and, you you know, you're talking about Universal, Disney, all those sorts of things. They'll probably spend, you know, a 100,000,000, $200,000,000, or even more, you know, a little bit less producing a movie.
John:On our end, we deal specifically with independent filmmakers. And where that separates is a studio, everything is in house. Right? All the money comes within. They're not typically taking on one eight one investors or anything like that because they have their whole corporate structure that they work with and that's how they make films.
John:We work with independent filmmakers and we are independent filmmakers. So we deal with budgets that are smaller. We're still able to bring in the the same talent. And what typically happens is those big studios will come into play as distributors. So when you see, like, this film was produced by, you know, let's say, Three Legends Entertainment, and and it was also you also see Universal Picture on there.
John:So they're they're kind of a partner in the picture. The filmmaker is kind of the workhorse. They did all the you know, they got down in the dirt. The you know, they they brought on all the the cast and crew that's gonna be a part of the movie. They got the film made, and now the big studio comes in and helps distribute it to all the theater streamers and all that sort of thing.
John:Okay. Yeah. So that's that's kinda where we focus. And so our films are usually within that 2 to $5,000,000 budget range, sometimes a bit higher up to 10,000,000. We could even sometimes we have we have films that have been on slate that have been more into the 40,000,050 million dollars range and stuff like that.
John:But our focus usually is in that range. With that kind of film, the amount of investors that are involved in the 181 side really depends on what those investors are able to bring to the table. So if they're putting in $100,000 to handle their taxes, or they're putting in $500,000 We have a certain range within there. So say we have a $2,000,000 film, say we shoot in a state that gives us a 40% tax credit. So that cuts out, you know, that gives us part of our budget.
John:We go around, we do presales for distribution to theaters, foreign and domestic, and that brings in 20 to 30%. Then we have that additional 30 to 40% that we need to fill through traditional investment. And that's where the 181 investor comes in. So if we have a $2,000,000 film, we only have to fill that 30 to 40% range. And depending on the investors themselves, how much money they make and how much they can invest, That kind of determines how many investors we need to bring in and are involved.
John:Once that budget portion is fulfilled that we can accept for 101, then that's all the investors that we take and any additional investors we can get involved in a different film project.
David:Okay.
Heidi:David, this might be a question for you. Either one of you guys, I guess, can answer this one. But can you provide a direct example of an investor? I guess David may be pointing to you, I'm looking at whole case scenario. How would an investor or again, if we're using a specific example, how an investor has used this as part of an overall tax strategy and then how that penciled out for them in their specific situation?
David:Great question. Our approach typically from the tax side is always looking at the taxpayer as far as them being an investor second. It's really trying to protect them on their tax return and get the very best results. As far as an investor example, there's many, but I'll just use one as one of our investors was receiving a lot of their, we'll say retirement money as they were retiring from a large W-two situation. They were an advisor, they are an advisor and they were not aware of this particular tax strategy and they had a lot of tax to pay.
David:What usually first pass with anybody that has been involved in this particular one is we try to first exhaust all available means that are on the tax return or near the tax return, we'll say, things that they're already kind of involved in, things they're doing. So first we generally look at that and then there's the moment of this is where I'm at for tax and they owe some large amount of money because they had received some pension funds that were a lot of large withholding. So they feel like, boy, all that money's gone. And that's when we come in with the ideas that you have through your various relationships and your own skills. And then we present an idea and the one that we told is not on their tax return is the investment in films.
David:We have had some really excited investors. So with that investor, they put in, I'm going to say a little over a 100 and they received basically most all of their tax money back. They multiplied that and offhand, just I'll say they put in a 100, they were going to owe, believe 300,000 and they received their tax money back. I don't have the specific numbers, but it was significant and they were very pleased and they're looking to do it again. So that would be an example.
David:One of the things that I did want to mention, so each taxpayer has a different source of income. So a business owner with a low W-two, you definitely want to do tax planning on because you got to be aware of qualified business income and its effect on the tax return. So each investor has different things going on, as you well know. So we try to look at that first and then if it plays out for them, if they have a large W-two situation, it really works great.
Heidi:Yeah. I think that's so important. I appreciate you honing in on that. That's something I wanted to point out as well, is that there are a number of different tax strategies, but ultimately, it's so important to look at the big picture, understand all of the intricacies for a particular investor, and how that all flows down to their personal tax return. A lot of people don't realize that all of these investments in businesses and W-2s and K-1s all end up on the personal tax return ultimately is going to dictate what they're going to owe in income tax, both federal or state, and then building a strategy around that and then creating, I think, a plan typically diversified with options.
Heidi:This may be an option that fits beautifully in that overall plan. One question as it relates to California specifically. Now, I believe, does not follow or allow bonus depreciation. So how is the particular tax for film production or the deductions on film production handled in California when you compare federal and state?
David:Well, federal, that's where the benefit is. And so the benefit is because of the amount of tax that I mean, back to the topic of high net worth or accredited investor. So just due to the, we'll say the number on the federal side, it ends up being beneficial once we run the numbers. We run the numbers first to show that the play out, but excellent point regarding California. California, unfortunately, and that's why there's a lot of the films made in, we'll say, in the Southeast and different states or California Yeah.
Heidi:Hang on one second. Let's give it just a second and make sure that it's stabilized. Okay. Looks like we're okay. Okay.
Heidi:Yep. Just start off kind of there where you broke up.
David:Great point on California. Unfortunately, as you pointed out, California does not do the same treatment on accelerated depreciation as Fed. And so we first use the federal benefit and that's generally enough to say, wow, okay, I have a huge benefit here on the federal side alone. The state side, that's unfortunate in California, but that's how it is.
Heidi:Okay. Good to know. Yeah, that's always a factor when we're dealing with different states and how tax is going to apply in different areas. And to your point, we're starting to see it. I'm in Vegas.
Heidi:We're starting to see they're building a large production studio here in Las Vegas. We're seeing that across the country. Think, of course, Austin is doing a lot of that. We're seeing things in South, to your point. So it'll be interesting to see what additional benefits are triggered.
Heidi:Is there one area that's ideal? John, I'm assuming there is a state or an area that is now drawing people due to incentives?
John:Yeah. Definitely state by state. As far as 181 goes, as he was speaking to towards the beginning of the podcast, there's a $15,000,000 to $20,000,000 range of money we can take there. And extra $5,000,000 boost is meant to incentivize filming in areas that are a little more underappreciated or involved. I won't go into that, but there's a little kicker there, extra incentive for investment that we can bring it into a film.
John:But as far as state tax film credits and stuff like that, greatly varies state to state. Here in California, we actually just passed some film incentives that greatly increased our competitive position against some of those other states that have been doing a great job of luring film productions to their states. So, like, some of the the top ones are Louisiana, Georgia, New York, all those places have great incentives like 35, 40%. Whereas in California, we had about 20 to 25%. And then we had a cap on how much of that incentive could be used.
John:And the number was pretty low. And now they've pretty much tripled that number of available tax credits for productions in California. And they've increased that tax incentive to a range that can land anywhere between 3545% depending on where you're filming and how you're doing it. So it's it's definitely we're kind of stepping that up over here. The only thing that I would say that is a detriment to California above places like Louisiana and Georgia and stuff like that is the cost to produce a film.
John:So your cast, your crew, your dues, all that sort of thing, the cost kind of increases when you go to California as opposed to some other states.
Heidi:Absolutely. Overhead costs. I'm sure there's so many different factors. We see it with insurance rates and just overall cost of living and wages and everything else. So, yeah, those are certainly factors.
Heidi:A couple of last questions. Who would you identify as the ideal candidate? Where you can really pinpoint, look, if you as a listener have this situation, then this is very likely a good thing to potentially take a look at.
David:I'll just start off with that one. So I would say the number one is a person that interest in their tax situation as far as what else can I do? They're not just filing their own tax return typically. This is a person that has advisory team that is looking into the future. They have exhausted all means with their advisor as far as what they can do, and they're open to say, Well, what else is out there that I can be a part of?
David:And then that's when the door opens as far as, and we're obviously not just one option, only the film. You can do multiple options. You look at the different array of them because it's similar to any, it's like buying a stock, right? You might say, well, let's be more diversified. And so there is a way of kind of looking at the risk tolerance, what is the best amount.
David:And then once you find a good option, then you might do it again. I think that's what we will see or we do see in the film particular space is, Hey, I like that. Let's do it next year. When's the next film coming? And so it actually opens up a door.
David:It's almost like trying a new sport and you end up liking it. You're like, Okay, I'll be more involved. So it's fun and I really enjoy this area.
Heidi:Absolutely. Is there a particular level of income or tax liability where it makes more sense or where it's like, again, a threshold that would make sense for someone?
David:I'll just quickly say that it could apply to anyone. The question would be if they're an accredited investor. So for example, I would say if you have one, a tax liability, if you're working with a tax liability or you're having a large amount of withholdings, let's say your number is a million and you're saying, boy, I'm paying $400,000 in tax, those are real reasons to really consider because that that like the large w two, we'll say a lot of people, let's say, in Wall Street and they have these large w twos, but half of it is taken in tax. Those are really people that would benefit immediately to consider some of these alternative options and then obviously done with a party that is very aware of all the risks that the taxpayer may face. And that's our approach and that's why we've teamed together as with the production studio with three legends and Scott CPAs as an example so that you're not just too risk averse or too without the care for risk.
David:So it's the combination so that you can reasonably meet the position that you need to achieve both the removal of the tax and the investment benefits.
Heidi:Absolutely. I mean, it's a reason why I've enjoyed meeting both of you and having the conversations. And I think it provides a little bit more security, understanding that you have kind of both sides of the expertise. John, you've got this background in film and production. And David, you've got the CPA tax knowledge that can really look at the whole thing.
Heidi:That's one issue. You have tax strategy that then is like, Well, you need to find an advisor to really understand what it's going to mean or what the potential limitations are. That's actually something we deal with a lot on our side as well with incentives. Is having all of the pieces and the right advisors in place so that you can really look at what is the best situation for you as a taxpayer and what ultimately the bottom line ends up being. Last question before asking for contact information and all those fun details.
Heidi:Do you have a minimum investment? What is the lowest that you'll take for an investor to come in and work with you?
John:Yeah. I mean, pretty much speaks to what David was talking about with an accredited investor and stuff like that. I would say for sure that benchmark that we try to hit is about a $100,000 investment.
Heidi:I
John:forget what the numbers are and I'm sure David could speak to it better, but once you hit a certain threshold, it just, you know, it gets a bit trickier, especially when it comes to the business side and PPMs and all that sort of thing, handling investors if they're not an accredited investor. So that's usually the benchmark we try to hit with that. And also on the film side, as far as investors go, know, when we have that investment pool that we need to fill, it's easier if we're not bit and piecing parts of shares of said film production and stuff like that. So we try to keep that number around so that, you know, Joe Clark is not coming in, has 0.2 shares of the company and we have 40 or 50 other investors like that. Try to keep it simple.
John:That way we can keep the experience more intimate and available for participation to an extent. And it feels more of an experience aside from the fact that it is an actual investment and a tax strategy as well.
Heidi:Yeah. Yeah. That makes sense. To your point, I think that in line with what David shared about an ideal scenario or ideal situation for an investor, I think those all kind of line up with what makes the most sense. What is the best way for people to reach both of you?
Heidi:And of course, in the show notes, I always include your contact information and website links, but share a little bit about how best to reach out and then we'll wrap up.
David:Sure. Well, you can reach us by phone at (916) 722-2524 and ask for David or John, and we will be glad to give you further insights on this topic. I wanted to circle back around really quick as far as the amount on the tax. An example would be if I owe $50,000 in tax, let's say, and instead of paying that 50, I pay 50 into a movie or a 100 into a movie. I wipe that tax out and give additional amount of money back.
David:I'm making money once I determine how much tax I owe. That's kind of how we look at it. How much do you owe and then what would be a good investment as far as getting them there.
Heidi:Got it. So you can work with an investor to understand what their tax implications likely are and then essentially back into what would be the ideal investment?
David:Yes, exactly.
Heidi:Perfect. Love it. Okay, wonderful. Well, David, John, thank you so much again for being on the podcast today. I know our listeners will be interested, and hopefully we answered all of the typical questions.
Heidi:And we will look forward to working with you guys on future projects, and we'll share your contact details in the show notes.
David:Thank you, Heidi. Thank you very much.
Heidi:And that's a wrap for this episode of the SlashTax Podcast. Big thank you to David Scott and John Langford for sharing how strategic tax consulting and film production investments can come together to create win win opportunities for investors. If you're a credited investor or high income earner looking to diversify your portfolio and leverage these powerful tax benefits, then check out the show notes for a special link to connect directly with David or John, or feel free to reach out to me directly. Don't forget, please subscribe, leave a review, or share comments. I would love to hear what you think, and share it with anyone else who's ready to combine smart investing with game changing tax savings.
Heidi:This is SlashTax, where we help you cut your tax bill and keep more of what you earn. Until next time.