An early Xmas present for Broadway Investors: Tax Relief!!!

Santa came early for Broadway Investors and Producers this year.

After months and months of lobbying (some of which YOU helped with back when I posted this blog), Congress approved a change in an archaic tax law that will benefit Broadway Investors.

Finally!

The gist of the change is this . . .

Previously, Broadway Investors were required to pay tax on paper profits as reported by the show, even if the Investor had not yet received the money for those profits.  Confusing?  Exactly.  That’s why they changed it up.

I can’t tell you how many angry phone calls and emails I’ve received from Investors (usually around April 14th) saying, “Ken!  I finally got a hit!  And now I’m writing a check to the IRS, even though I don’t have the money that I’m paying that tax on?  Tell me why am I doing this again?”

Now, under the old system, the cash would eventually straighten itself out, but boy oh boy was it confusing.

Under the new law?  That “phantom income” concept is gone.  You only pay tax when you get the profit.  (Duh, right?)

What does this mean?  Well, it simplifies Broadway Investing, and anything we can do to make the process simpler (especially when paying profit) and easier to understand gives us a better chance of Investors continuing to play our game.  Too many complications and things that don’t make sense (especially about taxes, which I’m convinced only about 7 people in the world truly understand), and suddenly, just writing a check to a non-profit, which allows the Investor to take the loss right away, seems that much more attractive.

Will the change mean a flood of new Broadway Investors to our market?  Nah.  But we’ll have less Investor attrition for sure.

The bigger win here has nothing to do with the law.  It’s the tip of the hat and the deep bow that Congress just gave Broadway.

What you may not know is that TV and Film already had this tax benefit, but no one ever cared enough about us in DC to make the change.  Broadway was the only entertainment industry treated in this unfair manner.  After the past several years of record-breaking seasons, after multi-billion dollar economic impacts on NYC, after headline-getting news like Universal announcing Wicked would be its most profitable venture ever, after visits from the Obamas to many of our shows, and after our shows making so many appearances at the White House, Congress finally realized that they needed to give our cottage industry a second look.

Yep, this 13-year-old, pimply-faced girl with braces just grew up into a supermodel.

So yeah, I’m happy about the tax change.

But I’m even happier about the Aretha Franklin-sized R-E-S-P-E-C-T that the lawmakers just gave us all.

Major kudos go to the Broadway League, and its Government Relations Committe (led by the Two Toms, Tom Ferrugia and Tom Viertel) for their tireless efforts on our behalf.

 

(Got a comment? I love ‘em, so comment below! Email Subscribers, click here then scroll down to say what’s on your mind!)

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Comments
  • Ken:
    This post suggests that all investors in a play are eligible for the benefits of section 181. Only two groups can benefit (a) active producers, who are in the trade or business of producing or (b) investors with passive income, basically only from real estate income, and limited by the amount of that investment income in each year, can benefit.
    Section 181 on its face doesn’t say that, its true. But just like the Alternative Minimum Tax, which comes in to bite taxpayers who don’t expect it, the tax return must be prepared in light of the entire Internal Revenue Code, and section 469 limits the deductabilty of passive investment, like a theatrical production.
    I wrote a blog about it here: ow.ly/WkTgr
    Great blog, love what you do.
    Marc

  • Is it retroactive by how many years?? Lol

    • Mary Ellen:
      Theatrical investment made in 2015, where the entity makes the proper election in a timely fashion, and where the investor has passive income from real estate will benefit from this change. Investments made in prior years will not benefit. Investment made in 2016 will also benefit.
      It is very important to note that the entity must make the election properly and timely, and only those investors who have passive real estate income, may deduct the investment, up to the amount of their passive income, or are active theatrical producers.
      Its not that big a deal, it doesn’t affect that many people .
      Read my blog: http://www.marcjacobson.com/blog.
      marc

  • Hello Marc,

    Thank you for your comments. Section 469 seems to be random in its requirement limiting tax relief solely to investors with passive real estate income. Is there any insight as to the origin of this odd restriction? This may need to be the next frontier for the entertainment investor community.

    • Marc Jacobson says:

      I don’t know the answer, I’m sorry to say.
      My guess is that it has to do with the relative power of lobbying groups.
      Still, real estate investors will understand the way entertainment industry investments work, since the analogy is that in entertainment, the intangible copyright is equivalent to the tangible real property, which is then divided up and licensed or rented out.
      Changing it is a good idea too!

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