Workers Comp/Taxes/Paying Crew Members

Your state may vary, but for federal any crew will be contract labor. They're there fore the gig and gone. There's no tax witholding or anything. You'll need a W-9 from them, then at the end of the year you send them a 1099 with how much you paid them and you deduct that from your income. Basically telling the IRS that they're responsible for taxes on that amount of money.

As far a deductions, most anything you spend toward the film will count.

The smartest thing to do is not rely on my advice or anyone else that isn't a CPA in your state. If you have enough funding for this to be an issue, you have enough to spend an hour or two with a CPA and get it all sorted out.

As far as legal pitfalls, there are plenty of things people can sue you for. Insurance can help, and so can forming an LLC. Again, don't take this as solid advice. Visit a CPA.

I'm not a tax accountant nor a lawyer and I also live in Australia so don't take my advice as gospel.

That said, the way we work here is that most crew members are contracted. That means that they are paid their fee which does not include benefits and that's all. It is recorded as income, because the Production Company is a business and records it all and hands it to the tax man at tax time.
Some of the crew members are tax employees and they get Superannuation paid, as well as holiday benefits etc. etc. Rates for crew are adjusted to take this into account. For example, under australian law 9% of a tax employees income has to be put into a Super Fund for them. Because of this, contracted crew who are not required to be paid Super are paid an extra 9% to ensure that rates are effectively the same.

Tax deductables depends upon whether you are a business/production company. The way it works in Australia, is you'd be best to set up yourself as a business - your production company and treat that money as income. Then, you're entitled to pretty much deduct all your expenses on tax, including the money lost (ie you would note that your business income was $10k but your costs were $10k and therefore you made no money.).

Consult an accountant and a lawyer, however, as they will be able to advise you on state and federal laws and obligations.

1. If I am going to be paying the main crew members for their work, do I need to consider them employees? Do they need to record this as income? Would it be a mistake to pay them under-the-table style?

You don't consider them employees if you do work-for-hire. If you pay them $600+ (if my memory serves me correct) then you have to report that under your taxes. You will need to send them a 1099. A 1099 is similar to a W-2 except it notes payment from a company to either an individual or another company. One copy is sent to the person/group that provided the services. The other copy goes to the Govt. If you don't send them a 1099, the government can give you a $100 fine if they catch it.


2. What are the laws on tax deductibles when working on films. Can this apply to a small indie film so that I won't be taxed for the extra money coming my way even though it won't be helping my needs whatsoever?

If you are a legal entity (business) in your state then you can take deductions on EVERYTHING related to your business and/or project. That includes gas (traveling), food, equipment, services, etc. It's always best to consult with your tax person though.


3. Are there any legal pitfalls I should look out for while producing an indie film? Perhaps things that most people don't think of, but you've experienced.

Yes, you can get sued (especially these days) for just about anything. It's best to get production insurance for every project and become an LLC so that if you do get sued your personal possessions are safe.

Thank you for the advice guys. I think we'll definitely pay someone to advise us. I actually found out my girlfriend's childhood best friend is a lawyer for the entertainment business, so that's a huge help.

We're going to turn our production team into an LLC for fundraising purposes (we have a way to allow tax deductible donations if we are an LLC, it's more inviting to potential investors, and our personal assists will be safe... not that any of us have much)

CJInzana said:

We're going to turn our production team into an LLC for fundraising purposes (we have a way to allow tax deductible donations if we are an LLC, it's more inviting to potential investors, and our personal assists will be safe... not that any of us have much)

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Unless you know something about tax deductible donations that I've never heard of before (certainly possible), you can't deduct donation to a for profit entity from taxes. Your LLC would actually have to be a 501(c) non-profit organization for tax deductible status to apply. If you have information on an exception to this rule, please post the legal siting because I would love to use that myself.

Lucky Hardwood said:

Unless you know something about tax deductible donations that I've never heard of before (certainly possible), you can't deduct donation to a for profit entity from taxes. Your LLC would actually have to be a 501(c) non-profit organization for tax deductible status to apply. If you have information on an exception to this rule, please post the legal siting because I would love to use that myself.

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I thought so too, until I heard about fractured atlas from the company I'm working for

http://www.fracturedatlas.org/

I'm not sure completely how the legality of it works, but they are a 501(c) status company that can sponsor your film allowing the donations to be tax detectable.

Also, in the Pittsburgh, investments and expenditures for motion pictures ( actually I think all arts) are tax deductible. That is the many reason Paramount has been shooting so many films here, also the reason the company I work for moved from LA to Pittsburgh.

That looks cool. I'll have to run it by my CPA before I sign up.

I live in NYC and will never issue a 1099 to a crew-member again. If you shoot in NY State, they are all to be classified as employees, unless they operate under an entity (LLC, DBA, Corp). I did a 200K flick here a few years ago and paid cast and crew the way 99% of indie producers at 200K level do, SAG actors are considered employees and paid through a payroll service, crew are considered independent contractors are given checks with nothing taken out and are later issued 1099's.

Easy enough right? The shoot ended and we all went on our merry way. Whups, not so fast. Six months later I get a letter from the State Unemployment Insurance Division informing me that our script-supervisor (who was paid with 1099) was applying to collect Unemployment Benefits, claiming that she qualifies because she was actually an employee. Puzzled, I sent their office a copy of the contract the script-supervisor had signed which specifically stated that she was a contractor and not an employee. Turns out NY State doesn't care about the contract. They have a bunch of questions that you have to answer about the person's job duties. Based on those parameters, every crew-member on a film is an employee in the eyes of NY State.

The only independent contractors on a shoot are basically the attorney, the accountant, and anyone (could even be crew-member), who is an entity. At a certain point I got a nice letter from Worker's Comp stating that I owed them 80K. So now began a witch-hunt, if you will, where UI and Worker's Comp turned my company upside down and basically charged me retro-actively on the contributions that I should have made to them.

To make a long story short I hired a skilled accountant who dealt with both Worker's Comp and UI and managed to get me to settle for like 12K. Phew, could have been much worse. So there you go no more 1099's for crew. They will all be paid via payroll service from now on. All it takes is one crew-member to file for UI here and they send the dogs after you.

Yikes. Sorry man. Stories like that make me thankful for living in Texas with no state income tax to worry about and generally easier regulations.

Stories like that also prove the worth of LLC's and LLP's. Should the worst happen, the company goes bankrupt and you start over with a slightly different name.

To anyone young enough to be considering college: this is why regardless or your profession business and tax classes are worthwhile. Two things in life you cants escape, death and taxes. With some education you can ease the tax part quite a bit and stay out of jail doing it haha.

You could run into the same problems in Mass. People are constantly running into problems determining who is considered an independent contractor.

To be fair, I've heard Texas stories about it too. There is the questionnaire thing that determines employee or contractor.

Traditionally though, pretty much every production job (especially acting) is a contract thing. You sign on for a 2 week or 9 month gig or whatever, then if you have a good agent move right on to the next gig. Stories like that are a little frustrating to hear about and an egregious example of taking advantage of the system.

Laws and taxes like that make me leery of how many people I hire in the future. When there's a lack of jobs, you'd think they'd make it easy for anyone hiring wether for a week or 10 years or anything in between.