By Jennifer R Jones | Posted on January 16, 2016 10:23 AM
A New Broadway Tax Incentive Now Provides Producers With The Advantage To Write Off Their Investment In Their Own Income, Ensuring They Only Pay Tax On Profits Once They Are Made
Investors Can Now Deduct 100% of Their Investment from Income
On December 18, 2015, President Barack Obama signed a bill into law that includes provisions very favorable to the Broadway industry. The film and television industries have long been able to take advantage of tax incentives – most notably, Section 181 of the U.S. Tax Code permits film producers to write off 100% of their film’s budget, up to $15 million, when at least 75% of compensation has been given within the United States. Furthermore, each state offers its own tax incentives for filmmakers, which encourage producers to shoot their films in one state or another, as suits the project to take advantage of the incentives.
The Broadway industry has been at a disadvantage with regards to tax incentives, until now; this has dissuaded new investors from entering the industry, particularly those investors who are already familiar with the generous incentives to film and television projects. Beginning January 2016, this new law levels the playing field between all types of entertainment in the U.S., as the IRS will now treat Broadway in a similar way to how it treats film and television. Specifically, an investor can now deduct 100% of the investment from his or her income, in the year the investment was made, up to $15 million.
Law Also Fixes Broken Structure Requiring Guessing Profit in Advance
In addition to allowing investors to write off their investment, this new law repairs an issue that has been very problematic for Broadway producers and investors. In the past, when a show entered production, it had to literally guess how much profit it was going to make for years to come, which is ridiculous in light of the major unpredictability of the success of any Broadway show. Through a creative analysis of a show’s potential, producers would have to estimate how long a show would run, and how much money it would make. Then, they would need to make tax payments on these unseen, estimated profits long before the profits were made, if ever.
This often required producers to borrow money to pay taxes that might eventually be refunded, as the majority of Broadway shows close before they even see a profit. On the other hand, if a producer underestimates his or her show’s profit, then they might be liable for penalties. This new law therefore fixes a broken system, allowing investors to write off their investment instead of paying taxes on speculated figures. This does not mean they don’t pay tax on profits – it just means they don’t have to pay tax until those profits are actually made. Until then, the investments are rightly considered losses for tax purposes.
The Broadway industry is currently thriving. In the 2014 to 2015 season, the Broadway industry brought in $1.37 billion in grosses, up from $1.27 billion the year before. Nevertheless, producers have repeatedly reported that an investor’s inability to benefit from tax incentives can significantly dissuade new investors from entering the industry. Although Broadway has more shows interested in theatres than available theatres to house the shows, it is still often a steep battle to finance these productions. Even when a show has been announced for a particular theatre, that does not mean they have been fully capitalized as of yet, including several shows that are gearing up for this spring season.
Producers are often scrambling up until the last moment to persuade investors to contribute; while some shows are surefire hits that have more investors interested than shares available, most shows have much more difficulty. Like with any investment, an investment in Broadway requires relying on one’s own taste and instincts. Therefore, this new tax law will add another huge incentive for investors who are on the fence with regards to risk, as at least they know the investment will lower their tax burden in the short term. Furthermore, it ultimately leads to more jobs in the Broadway industry, according to New York Senator Chuck Schumer who championed this bill into law.
