Author: Alleson Tate
In the dynamic world of the entertainment industry, intellectual property (IP) is the lifeblood of creativity. At the recent Bronze Lens Film Festival, a spotlight was cast on the financial aspects of managing and protecting one’s creative assets. This session shed light on the many financial risks and opportunities that come with IP in film production and the broader entertainment sector. To grow and protect your wealth through IP, here are four areas that require thoughtful planning.
1. Thinking about Tax Implications: IP encompassing copyrights to trademarks carry significant tax implications. Income generated from IP can fall under ordinary income or capital gain, subject to varying tax rates. Capital gains often receive more favorable tax treatment. Consult tax professionals well-versed in IP taxation to optimize financial outcomes.
2. Mitigating Financial Risks: The entertainment sector is rife with IP disputes. To reduce financial risks, establish clear ownership and revenue-sharing contracts. Consider IP insurance to protect against disputes and due diligence in IP agreements to preempt costly litigation.
3. Managing Expenses and Deductions: Content creation entails expenses, from production to marketing. These expenses can be deducted from IP income, reducing your overall tax liability. Detailed records should include legal fees, clearances and declarations, travel, production, marketing costs, and similar expenses. Qualified small businesses may enjoy a 20 percent deduction of qualified business income from IP-generated revenue. Home-based creators might be eligible to write off a portion of home-related costs.
4. Transferring Assets: IP is an inheritable asset and can create generational wealth. IP can be transferred during your lifetime to reduce estate taxes or after your passing. Transferring IP to heirs can trigger estate tax. Thoughtful estate planning for IP assets is crucial for addressing these concerns.
In this dynamic industry, understanding the intersection of IP and finance is essential. Creating your personal board of advisors—CPA, tax strategist, financial advisor, and attorneys ensures creators safeguard their intellectual assets while maximizing financial benefits.
Alleson Tate, CFP® [a CERTIFIED FINANCIAL PLANNER], is the founder of Avere Wealth Management,
an independent Registered Investment Advisory (RIA) firm based in Atlanta, GA.