The Republican tax bill has one provision that could boost Broadway investment and others that may weigh down some of its working members.
The tax bill, which was passed by the House and the Senate earlier this week and signed into law by President Trump Friday, is expected to hurt working actors and stage managers because it takes away tax deductions for expenses such as union dues, agent commissions and classes, according to the Actors’ Equity Association. At the same time, the bill provides a positive for Broadway as it includes a provision that will allow producers to expense initial production costs for the year following the first performance, which could bring in more new works.
If signed, the tax bill would apply to taxes owed in 2018, which means actors and others would not see the effect until they file taxes in 2019. That’s why Sandra Karas, an accountant and treasurer of Actors’ Equity, is encouraging actors to buy what they can now — such as prepaying for classes, paying agent fees or buying needed equipment — so that those expenses can still be deducted under their upcoming return.
“We’re saying whatever you can prepay before the end of the year, you should probably do that,” Karas said.
Karas, who prepares tax returns for Equity members, is fearful of the impact on middle-class actors under the bill, because she has seen that they typically spend 10% to 30% of their gross income on business expenses. After seeing the impact on their taxes in 2019, she is worried that it will cut down on the number of working actors and theater professionals in the business.
“I think in the worst case scenario it will discourage many people who aren’t wealthy,” Karas said. “Some of them might be discouraged and leave the industry altogether.”
Based on sample tax returns from 2016 and the final version of the tax bill, Karas has calculated that an actor who earned $87,000 would see a 30% increase in taxes, an increase of $2,878 from what they paid. An actor who earned $28,000 would see an increase of $1,213 or 336%.
That calculation is just for federal returns. She notes that actors and stage managers who do not receive healthcare from a union could see extra costs due to the elimination of the individual mandate of the Affordable Care Act. Additionally, members in the California and New York, which have high taxes rates, are expected to pay more in taxes as the bill cuts down on previous deductions for income and property taxes.
Like Equity, the Stage Directors and Choreographers Society had been asking their members to get in touch with their representatives and urge them to vote against the bill, due to the change in deductions, as well as the elimination of the individual mandate under the Affordable Care Act.
“Even as we study reports about the impact of the tax bill, new challenges continue to emerge, and the full effect of the bill is not yet known. But we are very disappointed in the actions Congress has taken, believe they will be harmful to the field of the arts, and work against the interests of working men and women and their families, benefiting only a privileged few,” Laura Penn, executive director of SDC, wrote in a statement to Broadway News.
One solution would be for actors to self-incorporate, forming a limited liability company around themselves, which is a strategy some high-income entertainers use that would allow them to keep some of the tax deductions. However, Karas said this is not a possibility for many working members because of the cost and the fact that it would cause them to lose benefits such as unemployment benefits between jobs.
Instead, Karas says she and several accountants are looking at creative workarounds they hope will help next year.
“I don’t know exactly what we’re going to do,” she said. “It’s going to be a minefield out there.”
At the same time, Broadway is seeing one positive from the bill, which comes from the inclusion of the theatrical productions — as well as film and television productions — under the accelerated bonus depreciation section of the bill, which made it into the final version after first appearing in the Senate tax bill.
This allows producers to expense all of their costs in the year following the first performance of the show, extending what had been available to producers under section 181 of the tax code and eliminating phantom income, or income producers have had to report before they actually realize it. Investors can write off their capital contribution when they file their taxes that year.
“The inclusion of this legislation should be a great motivator for increased Broadway investment allowing for the continuation of new and innovative work,” Robert Fried, an accountant who worked with The Broadway League on this provision, wrote in an email to Broadway News.
The Broadway League said it had no comment on the bill at this time.