Navigating 2024 Tax Implications for Theater Producers

The possible sunset of many provisions in the 2017 tax law commonly known as the Tax Cuts and Jobs Act (TCJA) raises critical issues for theater producers and investors, as changes in tax rules could significantly impact financial planning and operations. The outcome of the 2024 election increases the chances that certain TCJA provisions will be renewed, but the extent of its renewal remains unclear. While we don’t know how TCJA changes will affect theatrical investors and producers, our Theater, Media, and Entertainment group has been closely monitoring the situation.

Taxpayers should study the key issues now to ensure productive conversations with their advisors in 2025.

1. Corporate Tax Rate Changes

The TCJA permanently reduced the corporate tax rate from a maximum of 35% to a flat 21%. President-elect Donald Trump suggested lowering it even further in the run-up to the election. With a Republican-controlled House, Senate and White House, negotiations about where the rate might eventually land are unknown. Key to this discussion, President-elect Trump vowed to further cut the corporate tax rate from 21% to 15% for companies that produce their products in the U.S., which could greatly benefit those corporations.

2. Bonus Depreciation and Expensing

Under the TCJA, companies could deduct 100% of qualified production costs for live theatrical performances in the year they start. IRC Section 181 allows deductions for qualified live theatrical productions up to $15 million, which is more attractive for investors but expires in 2025. If this deduction sunsets, investing and producing partners in theatrical production companies may see higher taxable income in the first year. Additionally, bonus depreciation under IRC Section 168(k) for most types of property will be reduced to 60% in 2024, 40% in 2025 and 20% in 2026 before it expires. Notably, many states do not accept bonus depreciation, making an extension of IRC Section 181 even more beneficial for theatrical productions.

3. Limitations on Entertainment Deductions

The TCJA permanently removed deductions for entertainment expenses, impacting many businesses, including theatrical production companies. If this rule is changed, it could alter how theatrical production companies manage per diems, a portion of which are nondeductible business-related entertainment costs and potentially boost entertainment industry profits.

4. Pass-Through Income Deductions

Through 2025, the TCJA allowed up to 20% deduction for qualified business income from pass-through entities that operate as partnerships or S corporations. Although theatrical productions are categorized as specified service trades or businesses (SSTB), some investors can still benefit from this deduction. A renewal of IRC Section 199A could affect the tax liabilities of these investors.

5. New York City Musical and Theatrical Production Tax Credits

The $300 million New York City tax credit started in 2021 and will expire before January 1, 2026. Many taxpayers have benefited from the New York City Music and Theatrical Production Tax Credit, allowing them to offset some of the costs associated with producing their current and future projects.

CBIZ encourages theatrical producers and investors to stay informed about potential changes and connect with us with any questions.