# Starting a Production Company



## StewTech (Jun 25, 2011)

So I'm looking at starting a production company. Not a rental company, so I'm not planning on any gear. 

I just have a large group of friends who have shows they'd like to perform, or want to perform, or want to work in tech. And it's always been my dream to produce my own show. 

I've got investors who are willing, but no accounting knowledge or accountant. 

The show I'm looking at putting on would cost $5000 in a 500 seat theatre (thats all in all, actors, directors, lights, sound, set costumes, rental, etc) or $2,500 in a 2,710 seat theatre. 

But my question is regarding taxes. 

If I raise $5000 from investors, and put it all in my personal bank account, and I spend it on the show, and I make $10000 (hypothetically, just to keep numbers clean), then I pay back my investors and I'm left with $5000. 
That means I personally made a profit of $5000, which I have to claim as income on my taxes. Do I also have to claim the income from the investors, since I technically made $5000 twice? So do I claim $10000, or do I claim only the ending profit of $5000?

Sorry to be so overwhelming, but I have no accounting knowledge what so ever.


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## chausman (Jun 25, 2011)

StewTech said:


> The show I'm looking at putting on would cost $5000 in a 500 seat theatre (thats all in all, actors, directors, lights, sound, set costumes, rental, etc) or $2,500 in a 2,710 seat theatre.


 
Are those the right numbers? How could the same show be half the cost, in a space 5 times as large? Shouldn't the larger venue have more royalties attached, as well as possibly more lighting and sound needs?


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## StewTech (Jun 25, 2011)

chausman said:


> Are those the right numbers? How could the same show be half the cost, in a space 5 times as large? Shouldn't the larger venue have more royalties attached, as well as possibly more lighting and sound needs?
> 
> 
> Sent from my iPad using Tapatalk


 

Yes, actually. I am friends with the owner of the larger theatre, and that's the deal he gave me. It however, located in BFE, whereas the smaller theatre is in downtown area.


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## Esoteric (Jun 25, 2011)

This is NOT advice from an accountant. My personal advice is to get an accountant on board to take care of this stuff.

But as a small business owner, the $5000 that you have to pay back is not income. Income (for tax purposes) is counted only on profit and not on gross (thank God).

Another idea is to set up as a not for profit and throw the money into another production.

Of course as someone who has worked on a few self financed productions, my final advice is, don't count on making any money. Just pray you break even.

Mike


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## StewTech (Jun 25, 2011)

I refuse to file as a non-profit, because it is to much paperwork and there is to much gray area of what you can do with the funds. 

If I make even I'll be thrilled, but I am concerned about making profit. 

So just to be clear, if I personally (with a DBA) make $5000 from a show, I still have to claim that as income?


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## Pie4Weebl (Jun 25, 2011)

Yes when you have income you have to claim it as income.


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## Esoteric (Jun 25, 2011)

Yup, anything that goes in your pocket has to have taxes paid on it.


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## chausman (Jun 25, 2011)

Esoteric said:


> Yup, anything that goes in your pocket has to have taxes paid on it.


 
Unless you live in a state that doesn't have an income tax. (Like Washington)

This Wikipedia article has all states without individual income tax.


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## metti (Jun 25, 2011)

I'm not an accountant but here is roughly what I understand the rules to be:
You are producing this show as a business for which you are the sole proprietor. As such, you are operating under the same types of rules that us freelancers deal with all the time. You need to pay income tax for all income. That includes the $10k that comes in from ticket sales or whatever and the $5k that comes in from investors. That said you get to write off all of your business expenses and deduct those totals from your income before paying tax. In this case, you get to write off the $5k that you pay back for the investors and the $5k in expenses associated with producing the show. $15k in income minus $10k in expenses equals $5k in taxable income.

The idea is the same for me. A client pays me, for example, $15k for a production for which I am providing my services, an assistant programmer, and some equipment that I rent for the production. I start with the income of $15k, deduct the $5k that I pay the assistant programmer, and deduct the $5k that I paid the rental company, leaving me with a taxable income of $5k. Now, in this example, that remaining taxable income is compensation for my own labor which involves some additional taxation beyond standard income tax but that is besides the point since it doesn't apply to your situation.


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## DuckJordan (Jun 25, 2011)

But there is still a federal tax you have to pay trust ne I live in one of those no state income tax. As far as the show I don't think your looking at full cost unless the shows are written by someone you know who wants to put the show on you are going to have to pay royalties. Not to mention that number seems really low for cost of rental of the building, The equipment (lights, sound system, set.) Not to mention needing to pay people to get the work done. Actors, Tech crew, and anyone else such as designers and directors... not saying you shouldn't do it. Just make sure you've got your bases covered. Also I am suspecting your investors are going to want some more money back. That's what investors do they spend money to get more back later.

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## StewTech (Jun 25, 2011)

Thanks for all your replies!

So if I understand correctly;

I raise $5000 for the show. This is written off (as a deductible) as expenses for the show. 

I spend that $5000 and make $10000. $5000 goes back to investors, which is also written off. 

Then I have to pay income tax on $5000, minus any other deductibles. 

I think I'm going to hire an accountant. Anyone know a good firm in Ohio? :neutral:


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## Footer (Jun 25, 2011)

The second you start taking investors things get hairy quick. Donations to a 501c3 is one thing, investors are another all together. Paperwork needs to be properly done for that. Odds are you need to be setup as at least an LLC. Its a whole thing. You don't want to have litigation come down on you down the line because someone was not paid out properly. Its not just as easy as taking money and giving back money if and when you make it back. The investors might be friends now, but you never know what is coming down the line and how those type of things can change when money is involved. Laws very state by state. I would consult both an attorney and an accountant before taking money from any investor.


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## Esoteric (Jun 25, 2011)

My dad always told me, never let friends invest money in anything you do. If you do, they won't be friends for much longer. But Kyle is totally right, you need the appropriate paperwork/contracts/etc. And all those need to be drawn up by lawyers.

And I certainly would not take money from anyone else without being at least an LLC for personal protection.


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## derekleffew (Jun 25, 2011)

StewTech, didn't you ever see _The Producers_ (any iteration)? For a look at how it's really done, spend some time at Ken Davenport - Opinions from a Broadway Producer .


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## StewTech (Jun 25, 2011)

I completely understand the need for caution to be taken, but if I get most of it covered by donors and selling advertising space, and donations, I'm hoping to only need to sell about 20% of the show. If I just get a investors agreement (from a lawyer) isn't the cut off at a certain amount? 

I know professional producers make agreements to get them their money back no matter what, but I've always been told that most small productions give a cut off, and if the show does not break even, they get back nothing or a very low amount of what they invested. Is this not the case?



derekleffew said:


> StewTech, didn't you ever see _The Producers_ (any iteration)? For a look at how it's really done, spend some time at Ken Davenport - Opinions from a Broadway Producer .



Of course! I must go bang some old ladies! Thanks for the link.


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## Footer (Jun 26, 2011)

StewTech said:


> I completely understand the need for caution to be taken, but if I get most of it covered by donors and selling advertising space, and donations, I'm hoping to only need to sell about 20% of the show. If I just get a investors agreement (from a lawyer) isn't the cut off at a certain amount?
> 
> I know professional producers make agreements to get them their money back no matter what, but I've always been told that most small productions give a cut off, and if the show does not break even, they get back nothing or a very low amount of what they invested. Is this not the case?


 
This whole thing is way out of what I know how to do or am trained how to do. Just watch yourself. Getting donations then pocketing the possible profits can be hairy. Just do your home work. Laws very state to stat. This is a business decision and business laws apply. I would stay away from the term "donations". That says that they are a tax deductable gift. Instead, think of the donations as sponsorship. Either way, talk to an accountant and a lawyer. This is the time you call up the family friend who is a lawyer and pick their brains for 5 minutes. I know it easy to do this casually, but any times money is involved you need to protect yourself.


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## DuckJordan (Jun 26, 2011)

Also something that seems to have been missed an investor is going to want more than just the money they gave back. They will also probably want extra for allowing you to borrow it. Just because you borrowed 5k doesnt mean you get to just pay the 5k back...

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## Anvilx (Jun 26, 2011)

Just to clarify I asked my dad who has a ton of financial experience (he is a cfo). He said that you would pay income taxes only on the 5k that you pocket after you pay your investors unless you are a corporation and then you would technically be taxed twice. Once on your corporation's profits and once when the corporation pays out it's share holders in the form of a dividend.

Sent from my HTC Liberty


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## museav (Jun 28, 2011)

I'm with those suggesting you hire a financial professional familiar with both the industry and your local tax codes and regulations. There are likely to be numerous issues involved that should probably not be decided based on input from a technical forum.

I also agree with Duck that an "investor" is accepting some risk but is doing so in order to see a profit, be it a dividend, disbursement, shares in the company or whatever. Someone giving you money and expecting only to get their money back seems more of a lender than an investor and thus that may have to be addressed differently.


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## ruinexplorer (Jul 1, 2011)

I would recommend checking with your local Small Business Administration who should be able to point you in the right direction. They will be able to direct you to the applicable laws and tax codes as well as having a wealth of information for professionals who can help you.


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