Section 181: The Best Entertainment News You May Have Missed

One of the biggest pieces of good news to come out of the IRS in decades, the IRS Code Section 181 was reinstated for another 5 years as part of the CARES Act or Coronavirus Aid, Relief, and Economic Security Act. If you work in the entertainment industry and this doesn’t send you over the moon, we’ll give you the benefit of the doubt that you maybe haven't heard about it or don’t know what it means. We’re going to dive into why this is such great news, and what it means for the film and TV industry in the US.

What Is Section 181?

In official terms, here are the basics of the section:

“26 U.S. Code § 181 - Treatment of certain qualified film and television and live theatrical productions. A taxpayer may elect to treat the cost of any qualified film or television production, and any qualified live theatrical production, as an expense which is not chargeable to capital account.”

In short, this means that film and TV productions in the US are now 100% tax deductible concerning production costs, for the first year of production. Having been reinstated in 2020 for 5 more years provides incredible potential benefits to parties like producers, directors, and others involved in the production process to produce their content in the US. Some of the benefits include boosted entertainment job numbers and increased investment in the industry as a whole.

The Biggest Benefits Of Section 181

This list won’t be anywhere near exhaustive, but it should give you enough reasons to get excited. Take a look.

Incentive For Investment

Since the deduction allows the tax burden of production to be reduced or even eliminated, it provides a massive incentive for producers to invest more heavily in film and TV productions. This increased investment means more production, and more production means more jobs. These aren’t just performer jobs, this creates work for writers, crew, craft services, and even ancillary services like equipment rental.

Higher Pay

Another benefit provided by the return of section 181 is that there will be more money available for production needs. With a 100% deduction for production costs, producers can afford to pay higher rates to those who work on the productions, like film, sound, and rigging crew.

This has the additional benefit of becoming a beacon for top production talent to begin coming to the US to work. Higher pay is also a big incentive for performers who may be hesitant to take on a role and can help create more attractive projects overall, with less money tied up in production, more money is available to pay performers.

General Economic Boost

While the return of section 181 won’t wipe out our national debt, it certainly can create significant financial benefits. There are countless ways producing a movie or filming a TV show can provide economic boosts to the areas where filming occurs. There are big benefits to local economies, the creation of cottage industries, and more.

Are There Any Drawbacks To Section 181?

While some amazing benefits can come from the return of section 181, there are some drawbacks or limitations. Here’s a quick rundown:

● It’s a deduction, it’s not a credit, on only the first $15 million.

● Section 181 isn’t particularly suited to individuals except for high net worth individuals

● If the production is released and becomes profitable, the savings created by section 181 only act as a temporary tax deferral, since the return on investment will be fully taxable (always a good problem to have)

Wrapping Up

While there are some drawbacks to section 181’s return, the potential benefits far outweigh them. Not only that, but it only requires one day of filming to be grandfathered in forever, so if you have ever wanted to produce something now is the time. Start shooting today.