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Disclosures

  • This is not financial advice or a solicitation for funding. All information and concepts on this page is meant for educational purposes only. Financial decisions, investments, and taxes should be discussed with a financial advisor, tax advisor or other legal advisor.
  • Do your own research and seek professional counsel. Film Investing is historically known to be a risky investment. If a production is improperly managed, investors have a higher chance of losing their entire investment and rarely see a return. Past performance is no guarantee for future performance or returns.

The Old Hollywood

  • Film Investing has historically been considered risky and given poor marks by wealth managers.
  • Often the investor was the first person in, and the last person to get paid back. Hollywood accounting practices have intentionally made films not profitable. This practice of “Hollywood Accounting” became the norm, and as a result film investments were not considered by most investors and raising became a challenge for producers.
  • That is until the Silver Line model was developed.

The New Hollywood

  • The timing and circumstances for a low risk film finance tax mitigation strategy have never been more favorable. “The Silver Line Model” is a film finance and tax mitigation strategy that re-arranges the timing for the funding of a film to be less risky and more beneficial to individual investors.
  • By changing the timing of who initiates the funds and when the funds are available, the Silver Line Model increases tax mitigation without increasing risk.
  • The Silver Line model creates multiple layers of risk mitigation by leveraging tax credits, sales and federal deductions previously not available to the investors in the “Old Hollywood Model”.

Lower risk, Higher yield

investments

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The Contract

Using the proprietary Silver Line model, Reel Finance works with all of the major distribution companies (streaming platforms) to contractually commit to a 100% Minimum Sales guarantee for all film productions on the platform. With the contractual commitment by these distribution companies, Reel Finance can go to a bank and take a multi-year loan or Line of Credit.

The Line of Credit

This Line of Credit provided by the bank requires Guarantors (investors) to place capital inside a deposit account to act as collateral. At this point, investor capital is not at risk because it is never touched by the production. Instead, the Guarantors’ investments are kept safe inside the deposit account and the production uses the Line of Credit from the bank for the production of the film. As soon as the Line of Credit is secured and deployed by the bank, all investors get their 100% federal tax deductions. Furthermore, when active investors have shown their material participation in the production through hours on set, they are able to get their 100% active federal tax deduction.

Liquidity event

As the production starts filming and receives their state tax incentives and rebates, the 20-30% in incentives and rebates goes directly towards paying down the Line of Credit. This will unlock that exact percentage of the deposited capital and be returned back to the investors. Now investors will only have have 70%-80% of their original capital locked up, which offsets their risk while still relying on the 100% Minimum Sales guarantee by the distribution partner.

Revenue

Upon completion and release of the film, revenue will start coming from movie theaters, DVDs, AVOD services, etc. and investors will start seeing returns on their investments. While this is happening, the films will be deployed to our streaming partners for profit share deals according to the original contract. If that is not enough, we can continue leveraging the film IP to generate revenue from sales of comic book and graphic novels, merchandise, video games, etc. to continue paying back our investors. Any revenue generated after paying back all investors will continue to be paid out in Royalties.

If the film does not generate enough revenue to pay back investors after 2 years, the distribution partner is responsible for paying out all outstanding investments per the 100% Minimum sales guarantee contract.

Active Income vs.

Passive Income

Active Income
  • Examples of active income are salaries, tips, fees, commissions, and allowances from the companies you provide services to. A person can earn active income by selling a product, such as artists, bakers, chefs and tailors.
  • Active income earners are also either full-time, part-time, freelancing, or contractual workers. If you’re working for a person or a company–be it manual labor, office work, or home-based service–you earn active income. You can even be working for yourself, which is called being self-employed.
  • If a business is earning the active income that is trying to be offset, then there is no limit to the deductions that can be taken by the business.
  • If an individual is earning the active income that is trying to be offset, then there is a limit of --- in the first year, and an 80% deduction in the next year.
    • Passive Income
  • Passive income is money from activities where you have no active or direct involvement. These may be investments you have made where you earn money or work you have done in the past that continues to pay dividends even in the present. In short, passive income describes the idea of “making money work for you.”
  • Unlike being fully employed or doing freelance work, it does not require much of your time and effort. Other ways of earning passive income include buying and selling real estate, investing in “ownerships” of public companies through the stock market, investing in government bonds , passive income can also include royalties from a book you write, an online course you create, or the rent you receive from your real estate properties. Passive income sources let you profit whether you’re employed or not.

      • Important Note :

    • Active Deductions can in certain circumstances deduct from multiple forms of Income. Passive Deductions only deduct from Passive Income and is capped by how much Passive Income you’ve made.
    • It’s very important to understand how you make your income, so you can create the right kind of deductions to reduce your taxable income bracket.
    • When investing in our films, its good to select which kind of income you make, so we can help you automate that document for your tax return.

    Capital gains tax :

    Short-term vs. Long-term

    Capital gains taxes are divided into two big groups, short-term and long-term, and is determined by how long you’ve held the asset. Here are the differences:

    Short-term capital gains tax

    Short-term capital gains tax is a tax applied to profits from selling an asset you’ve held for less than a year. Short-term capital gains taxes are paid at the same rate as you’d pay on your ordinary income, such as wages from a job.

    Long-term capital gains tax

    Long-term capital gains tax is a tax applied to assets held for more than a year. The long-term capital gains tax rates are 0%, 15%, and 20%, depending on your income. These rates are typically much lower than the ordinary income tax rate.

  • In 2023, individual filers in the U.S. won’t pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15% on capital gains, if their income is anywhere between $44,626 to $492,300. Above that income level the rate climbs to 20%.
  • In addition, those capital gains may be subject to the net investment income tax (NIIT), an additional levy of 3.8% if the taxpayer’s income is above certain amounts. The income thresholds depend on the filer’s status (individual, married filing jointly, etc.).
  • Meanwhile, for short-term capital gains, the tax brackets for ordinary income taxes apply. The 2022-2023 tax brackets range from 10% - 37%. Unlike the long-term capital gains tax rate, there is no 0% rate or 20% ceiling for short-term capital gains taxes.

    • Why KYC and Accreditation?

  • To receive federal tax benefits, our clients have to invest in the underlying production company of the film and do so in the U.S. where these laws are applicable. Since investors are investing into the companies that hold the rights to the films forever, this makes their investments a security.
  • In the future, we will be expanding Reel Finance to additional countries based on their unique tax codes.
  • When investing into movies there are three types of offerings; LLCs for equity holders in the business, RegD(506C) for Accredited investors only with minimum requirements, and Reg A+(Mini-IPO) open for everyone in the world with no minimum requirements. Reel Finance will support all of these offerings.

    • TL;DR

    • If you lower your U.S. federal taxable income through deductions to the income bracket of $44,625 or less in the calendar year that you sell an asset for a long-term capital gain, then you are taxed at a 0% tax bracket on the capital gain.
    • Investing in films directly lowers your federal taxable income, both active and passive. Then any long-term capital gains you make that year, for example from film royalties, will be taxed at a lower tax bracket.

    Benefits

    Reel Investors
  • 100% Federal Tax Deduction
  • 115% Preferred Return of Capital
  • 15% Backend Success of Upside of the film after Preferred Return of Capital
  • All ancillary revenue will be held in escrow and pointed towards production company to prevent loss of Capital and to speed up Revenue
    • Distribution Companies
  • They get to scale their content without paying enormous amounts of money.
  • Don’t have to pay exorbitant fees upfront for content.
  • They are out of pocket less while using the streaming rights for 2 years
  • They share in our profits when production company breaks even of entire loan.
    • Banks
  • Create a new financial instrument which gives them additional line of revenue.
  • They can make money on a de-risked movie because of the Minimum Sales Gaurantee
  • They are banking the dollars inside the productions
  • They are able to provide an entire industry more Liquidity

    • Terms of service

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