From our ongoing discussion of How to Do Your Taxes as a Freelance Filmmaker:
Tax deductions let you shrink your taxable income: the amount of money the government can claim taxes on. The lower your taxable income, the less money you owe. As we learned before, deductions are different from tax credits, but they can still save you a bunch of money if used effectively.
So, as long as you’re sure you love money, keep on reading and I’ll help you find ways to keep more of that sweet, sweet cash in your bank account and away from the IRS.
50 Tax Deductions Every Filmmaker Should Consider
Without further adieu, here is a list of 50 deductions you should consider if you qualify for and, if you do, add them onto your tax filings.
3. Computer upgrades in case your 6-year old Mac Pro needs a fresh new SSD.
4. Hard drives
5. Cameras that you rent out or bring with you on productions. Just remember these are considered assets and depreciate over time.
6. Camera Accessories. They can add up to cost almost as much as the camera itself.
7. Memory Cards. If buying proprietary formats like SxS or P2 cards, deducting them is a must to bring back some of that large purchase cost.
8. Lenses. Everyone loves lenses and they’re addicting to collect. Luckily, you can get some of your money back… to buy more lenses.
10. Netflix. Yes, Netflix can be justified as a deduction because it is necessary to stay current in your industry. I recommend keeping a logbook of shows you watch and why they’re relevant to your career in case the IRS audits you (i.e. “Watched House of Cards because it was shot nearby. I’m looking into working on the next season“)
11. Hulu Plus. Same deal as Netflix.
12. Cable Services. Same deal as Netflix and Hulu Plus.
13. Movie tickets. If you can justify it as a business expense, like Netflix.
14. Industry books and periodicals like American Cinematographer, Variety, or David Elkin’s The Camera Assistant’s Manual help you stay current and learn more about your profession.
15. Digital Cinema Pocket Guides. As a great resource to have in your kit or on your phone, my digital cinema pocket guides are tax deductible as equipment that helps you do your job capably!
16. Smartphone Applications like depth of field calculators and camera report apps are tools just like the wrench in your kit bag.
17. Web services that you use to deliver projects like DropBox. Or something like FreshBooks that you use to send invoices.
18. Editing software. Have a Creative Cloud Subscription? Or did you drop some coin on FCPX? If you’re paid to edit (or use the software to process footage), you can deduct it.
19. Meals (or drinks) and entertainment with clients, but only 50% and it should be reasonable.
20. Meals (or drinks) and entertainment with colleagues. Feel like treating your crew to a round of drinks or a night out? You could put it on the company card…
21. Wrap Party that you throw for the cast and crew could be considered entertainment costs (or just a cost of doing business).
22. Film screenings and premiere costs
23. Poster prints and flyers
24. Taxi Fares to get you where you need to go while on location.
25. Meals on location that aren’t covered by the production or a per diem.
26. Hotel Costs if you are paying out of pocket or have to pay for things like room service yourself.
27. Vehicle mileage or fuel consumption. This one is a bit tricky — you can only deduct mileage for travel out of your local area (generally about 50 miles). You can either calculate based on mileage driven or use receipts from gas stations.
28. Office supplies
29. Clothing needed for a gig, like if you had to buy a hard-hat to shoot in a construction yard.
30. Union dues. Yep, any dues you pay to be a part of a professional organization are tax deductible The most obvious are the many unions in the film industry, but regional and local clubs that you pay to join are applicable as well.
31. Website domain name
32. Website hosting
33. Website design or templates
34. IMDB Premium Membership. If you use IMDB as a tool for your production, their premium membership costs are a business expense.
36. Unpaid invoices are tax deductible as a loss for your business.
37. Any losses due to theft
38. Fees for day-players or friends. If you hire someone to take care of work you have overbooked or can’t do, their fees are tax deductible (assuming you are paying them instead of the production).
39. Charitable contributions or work. Be careful about deducting this one as you can only deduct actual expenses, not services. So if you did $1,000 worth of work for a charity, you can’t deduct that. But if you spent $400 on a hard drive for that project, you can.
40. Business cards. You can deduct the total cost including any design fees and printing costs.
41. Tax preparation. The costs of using tax software, financial planner, and/or a CPA.
42. Business incorporation costs such as annual fees to your state, payments to lawyers, or any costs associated with starting a business.
43. Self-employment tax. You can deduct up to half of the self-employemt tax (basically the “business” half of the equation).
44. Home office expenses. Rent, utilities, furniture, it all counts. Just make sure to have an actual home office! And be sure to only deduct the percentage of your expenses that are applicable.
45. Home office improvements. Did you pay to renovate your house to build a home office?
46. Health insurance costs if you are self-employed and you pay these yourself. If you receive the insurance through a union membership, you cannot deduct them. The costs must be higher than 7.5% of your adjusted gross income.
47. Medicine to keep all those on-set headaches at bay. The 7.5% AGI rule also applies here.
48. Conference expenses such as NAB that are trade shows for your profession allow you to network and expand your knowledge base.
49. Film festival submission fees
50. Film festival attendance including hotel rooms, flights, and payment to get into the screenings.
How Tax Deductions Work
Tax deductions are fairly straightforward. As long as the deduction is legally permitted, you’re just lowering the amount of income that can be taxed by the IRS.
So if the IRS determines your taxable income is $30,000 and you claim a $100 deduction, they will only tax you on $29,900. If you’re being taxed at a rate of 15%, that would save you $15 (15% of $100 = $15). That one deduction may seem insignificant, but adding many of them together can result in substantial savings, especially when coupled with tax credits.
Tax credits differ from deductions in that they are dollar-for-dollar. While deductions lower your taxable income, credits are applied directly to what you owe. So if you have a $500 tax credit, you will owe $500 less in taxes regardless of your tax rate.
There is a caveat to all of this though: all of your deductions added together have to be larger than the standardized deduction to make them worthwhile.
Each year, the government provides a standard deduction to every citizen who is filing taxes. It differs depending on a variety of factors and is changed annually. Most people take this deduction because they make very few, if any, purchases that classify for deductions.
But you, as a freelancer, are running your own business. That business is you. Even if you aren’t incorporated, you pay self-employment tax and the IRS considers you a sole-proprietorship (a single person type of business). That gives you a lot of leverage to take deductions, specifically itemized deductions. They’re called itemized deductions by the IRS because you break down each expense rather than taking the large sum of the standard deduction.
There are different categories of itemized deductions and each category has different rules with how those expenses can be applied:
Gear and Equipment
Purchases like computers, cameras, and pieces of your toolkit are tax deductible because they are necessary for you to do your job or run your business. The only catch is some of your bigger purchases may be considered assets that have to be depreciated over several years unless you invoke Section 179 (more info about this here).
Research and Education
Continually learning to stay up-to-date in your field is crucial to being successful over a long career. The government acknowledges this by allowing you to deduct expenses that are meant to further your education in your profession. You cannot, however, deduct expenses for educating yourself in another career — so unless you’re already in the film industry, your subscription to American Cinematographer isn’t deductible.
Meals and Entertainment
Do you have clients come into town for shoots? If you want to show them a good time, you’re allowed to do so and deduct those expenses as long as it is business related. You can also deduct meals you may have while meeting with prospective clients or colleagues to discuss jobs, gigs, and future work. That means all those Starbucks runs during pre-production are deductible — but only at 50%.
Paying money out of your pocket to get to a gig can be painful, but at least it’s deductible. The biggest catch is you cannot deduct expenses for a regular commute to work. If you commute daily (even for a short period of time) to someplace within 50 miles of where you live, it’s not an acceptable deduction. You can only deduct for traveling a significant distance — which, luckily, isn’t out of the ordinary for freelance filmmakers.
Necessary and Ordinary Business Expenses
If the IRS tried to come up with a category for every single business expense in every single industry out there, the list would be extremely long. So, instead, the IRS allows you to vaguely define some expenses as “necessary and ordinary” for business — your business.
This is the catch-all category.
This can include anything that you can justify as being needed to run your business effectively. That can include things like server costs for a website, an Adobe Creative Cloud subscription, a pack of gum you bought for the DP after lunch, and everything in between.
This is where getting creative with your deductions pays off. I’m not recommending you deduct anything illegally or deduct items bought for personal use, but I am recommending you consider what a business expense is to the fullest extent. For instance, as a member of the film and video industry, movie tickets can be considered a deduction so that you may stay current with your industry.
Stuff like that is the bread and butter of itemized deductions.
Next Up in This Series
The next post is all about how to prepare yourself this year for taxes next year. That includes tips on keeping track of your finances, incorporating yourself into a business, and hanging onto receipts.
What deductions do you take? Are there any that I missed? Let me know in the comments!