As a showrunner, you may have multiple responsibilities, including head writer, script editor, and character creator. This may leave little time to think about entertainment industry tax planning, bookkeeping, or accounting.
However, your industry has some intense taxation regulations. The more knowledgeable you are about entertainment industry bookkeeping and accounting, the better chance you may have of keeping your business and your personal finances compliant with tax laws.
Yield Adjusted Debt and Entertainment Industry Tax Planning
One of your responsibilities as a showrunner may be to get financing for your television series from third parties or from financial institutions. These loans may be secured by presale contracts or by assets of your production company.
Your entertainment industry CPA might work with your production company to issue a security that has a yield connected to revenues from your project. The principal amount of the security would be due at maturity, and the security could have little to no interest.
The IRS may view this security as equity because periodic payments only happen if and when the show is profitable. Therefore, the IRS may characterize these payments as dividend distributions. They would be taxable to the recipient based on your project's profitability. They do not consider distributions of this type deductible in your taxable income for the year. When repayment of the principal amount of the security is done, it could be viewed as a return of capital in your entertainment industry bookkeeping.
However, there are other circumstances where the IRS may view the security as a debt instrument, making the periodic payments instantly deductible. Our entertainment industry CPAs at Fusion CPA offer to work with you to structure your yield adjusted debt in a way that is financially beneficial for you.
How FASB Changes Affect Accounting for Episodic TV Series
In March 2019, the FASB changed the way an entertainment industry accountant would handle the production costs for films and episodic content. Previous laws were written decades ago based on the assumption that television programs would remain unprofitable until they went into syndication. However, many showrunners are working for streaming services like Netflix and Hulu that have a different profit model.
One standout provision of ASU 2019 – 02 is the removal of past constraints on capitalizing episodic television production cost. Now, an entertainment industry accountant would use the same standards for episodic television as is used for films.
Previously, production cost in capitalization episodic television was limited to the amount of revenue collected per episode in the initial market. Adjustments could be made once it was proven that revenue from secondary markets would take place or until the entity could show a history of earning money in that market. Now, an entertainment industry accountant can write production costs off as expenses that previously could only be capitalized.
An Independent Outlet to Manage Your Finances
Fusion CPA proudly offers tax preparation, tax compliance, bookkeeping, and accounting services to the entertainment industry. We work with entertainment professionals individually or through their managers, attorneys, and agents. Our entertainment industry financial advisers may be able to help you address accounting issues, asset depreciation, royalties, program budgeting, and more. We strive to offer those in the entertainment industry an independent source to manage and review their finances. Are you in need of royalty tracking, tax planning/preparation, IRS audit assistance, cash flow management, or general entertainment-related accounting services? If so, you can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.