Entertainment tax law is one of the most complex areas of tax law, and requires the advice of an entertainment tax lawyer. Musicians, authors, graphic and performing artists, photographers and entertainers of all kinds face unique entertainment tax issues. These issues include how to deduct the costs of creating a musical composition, sound recording, motion picture or the like. These works often require a substantial up-front investment.
Entertainers, like most taxpayers, want to deduct these creative expenses as quickly as possible to gain the maximum tax advantage. In many cases the Internal Revenue Code allows entertainers to take a full deduction for the costs of creating their art. Copyrights, compositions and similar intangible works, for example, are not generally treated as “capital assets” (in which case the entertainer would only be able to take part of his deductions each year through “amortization” and “depreciation”), but this is not always the case.
There is a complex body of rules that treat certain “qualified creative expenses” differently, and entertainers often have the option to elect (choose) how their work will be treated for tax purposes. There are a number of tax issues that are unique to entertainers that license or sell their work. In the case of licensing, the royalty income an entertainer receives is characterized as “portfolio” income that is subject to its own set of rules. Portfolio income is included in the definition of “net investment income”, which in turn can be subject to Obamacare taxes.
Key Issues In Entertainment Tax Law
While an entertainment tax lawyer is critical to helping you sort out the details, there are a couple of common themes to keep in mind that could save you on taxes:
Who owns your work? – How your musical composition, motion picture, book or internet streaming media creation is treated for tax purposes can depend on who owns what rights in the work, including the copyrights. In the case of intangible assets like sound recordings there may be many different “owners”, or people that own different parts of the same work. Entertainers often miss important tax planning opportunities by not considering how to use legal entities and licensing arrangements effectively.
What types of “costs” do you want to deduct? – An entertainer should have a solid grasp on the different types of costs that go into a creative work. Film and television artists and producers, for example, have “production costs” that may qualify for special treatment. Artists and publishers have amounts that are “paid or incurred to create or acquire a musical composition”. As with any business an artist may have “start up expenses” that must be treated another way. How you are treated for federal income tax purposes depends in large part on who you are, and what specifically you are doing in the process of creating your art. Understand these different types of costs in order to plan how to deduct the most of your expenses intelligently.
Are there international tax issues related to your entertainment? There are different rules governing how US taxpayers and resident aliens are treated versus non-resident aliens. International entertainment tax issues also come up where US corporations and foreign corporations are transacting business. This area presents some specific tax pitfalls but also presents opportunities to save on taxes where you are structured the right way for your industry and type of creative work.
A seasoned international entertainment tax lawyer can help explain your options. Call me to discuss your unique mission and vision.
Ari Good, JD LL.M.
Good Attorneys At Law, PA
2700 North Miami Avenue Suite 1012
Miami, FL 33127
Tel: (786) 235-8371