BY THE NUMBERS // Mel Schwarz, Partner, Grant Thornton LLP
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Entertainment and Taxes:
Will the Dude Abide?
The entertainment industry, particularly movies and television, enjoys many tax benefits. Filmmakers can immediately deduct productions of up to $15 million (the original budget for the Coen brothers’ cult
classic “The Big Lebowski”), and all productions benefit from the domestic
production activities deduction, or DPAD. With the right investment structure, entertainment ventures can minimize the tax burden on investors.
Many states and localities provide significant tax incentives and other forms
of tax-free assistance for locating production within their borders. Collectively, the incentives can really tie a movie together.
Expensing is scheduled to expire for
small productions that begin after 2016.
Congress has extended this rule five
times in the past, but no guarantees exist
for additional extensions. Because the
election season has limited the time Congress spends in Washington, legislation
that extends expiring provisions may
have to wait until after November.
pensive—and would likely be paid for by
eliminating provisions that benefit various groups of taxpayers.
What Could Tax Reform Hold?
Congress has been discussing a fundamental rewrite of the tax laws. For most,
the primary benefit of business tax reform will be a reduction of the top rate.
While many in Congress would like to
bring the rate to zero, a significant reduction in tax rates will be incredibly ex-
A rate cut’s design will determine if
it benefits all of the entertainment industry. If tax reform only reduces the
corporate rate without providing any cut
in individual rates or for active business
income, that could leave out much of
the entertainment industry. Entertainment ventures organized as partnerships
would not share in the rate cut. They
could elect to incorporate to access the
lower rates, but would then lose the ability to pass any losses through to their
investors—either during initial stages
of production or if the production fails.
Capital could become harder to raise.