As an SME in the Creative Industry in the United States, they are eligible to certain tax reliefs. Like all SME’s in the US, an enterprise is eligible to a tax deduction for qualifying charitable donations.
For business expenses to be deductible in the United States, they must be what is considered “ordinary and necessary.” In the creative industry, this means that the expense is something that is common and accepted in the creative industry and something that is helpful and appropriate in the creative industry.
Businesses are also usually able to deduct employees salary, retirement plans, rent expenses, interest expenses, taxes, and insurance.
In the film, television and live theatre industry, section 181 in the IRC allows certain television, film, and live theatrical production expenses to be treated as a deduction as long as it doesn’t exceed $15,000,000 or $20,000,000 in a low-income community or distressed county. A qualified film or televisions production is one in which 75% of the total compensation of the production is qualified compensation. For TV, each episode is treated as a separate production, and only the first 44 episodes are eligible to be deducted. Qualified compensation refers to services peromed in the US by actors, production personnel, directors, and producers. A live theatrical production is considered qualified if 75% of the production is qualified compensation. A production is a live staged production of a play (with or without music) which is derived from a written book or script and produced or presented by a taxable entity in any venue with an audience capacity of no more than 3000.
Under the IRC Section 168(k) certain qualified film, television, or live theatrical productions acquired and placed in service after September 27, 2017 may be eligible for a special depreciation balance. Under Section 168(k), the depreciation deduction is able to include an allowance equal to 100%of the adjusted basis of the qualified property if placed into service after September 27, 2017 and before January 2023. and the adjusted basis can be reduced by the amount of the deduction before computing the amount otherwise allowable as depreciation deduction.
According to the Internal Revenue Code Section 263A, all expenses that are used to produce a “creative work” are required to be capitalized, and then deducted during the time period that income is being produced. Additionally, if a creative project is ever abandoned, the taxpayer is able to claim a deduction for the unrecovered basis of the project. The requirements for abandonment include an intent to abandon the project or work and that the project or creative work is no longer salvageable.
Tax Reliefs as a Creative Industry SME USA
Small-Medium Enterprises – Creative Industry Tax Relief
· Qualifying charitable donations (501( c )3 organization
o Need to file an itemized federal tax return, Schedule A and form 8283 for non-cash donation s
In Massachusetts, creative industry is defined to include:
· Marketing, architecture, visual arts & craft, design, film & media, digital games, music & entertainment, and publishing
· When producing film, video, recording etc. taxpayer incurs expenses before product can produce income
o Capitalize expenses and deduct them over the period that product produces income
· Expenses for investigating, creating, or acquiring a new business are non-deductible capital expenses
· IRC Section 263A requires the capitalization of expenses to produce a creative work
o Total costs of creating assets (researching, preparing, producing, recording, utilities, tools, rentals, etc.) are required to be capitalized
· If a project is abandoned, the taxpayer can claim a deduction for the unrecovered basis