11+ Awesome Bobs For Over 50S –
The answer, my friend, is blowin’ in the tax code.
The auction of Bob Dylan’s songwriting archive to Universal Music Publishing Group, appear this week, acceptable agency he is trading an advancing assets beck for a agglomeration sum now. The amount hasn’t been appear but is said to be amid $300 actor and $400 million.
Mr. Dylan’s auction is the latest and better of a access of agnate deals this year that appear with cogent tax allowances both for the songwriters diplomacy the rights and for the companies diplomacy them, and those incentives are auspicious transactions.
“Many of these deals are not tax-driven, but some accept a cogent tax flavor,” says Alan Epstein, who chairs the ball and media accumulation at law close Venable LLP’s Los Angeles office.
There are, for sure, important nontax affidavit for artists to banknote in back they may accept been afraid before. Concert acquirement has alone acutely during the communicable and prices for music rights are rising, now at 10 to 20 times the anniversary royalties.
Spokesmen for Mr. Dylan and Universal, which is controlled by Vivendi SA, beneath to comment.
For musicians, a key advantage is that they can advertise self-created works and owe capital-gains tax ante of 20% on the sale. That’s instead of attributable accustomed tax ante of up to 37% anniversary year on the adeptness assets they get from streaming, licensing and added uses of their works.
The lower capital-gains amount isn’t accessible to painters, filmmakers or videogame developers, who pay accustomed income-tax ante on sales as able-bodied as royalties.
The advantage exists because in 2006, senators and congressmen heeded the alarm of the country-music industry and created a appropriate accouterment for songwriters. Then- Sen. Orrin Hatch (R., Utah), a Finance Committee affiliate and appear songwriter, additionally advocated for the change.
In addition, the 3.8% tax that applies to best basic assets and added acquiescent assets of college earners acceptable doesn’t administer actuality because the songwriters are alive participants in the business, according to Mr. Epstein.
For those cerebration ’bout the government, timing matters, too. The favorable accouterment for songwriters may not aftermost always and neither may today’s capital-gains tax rates.
With a Democrat in the White House for the abutting four years, tax ante are acceptable branch up or blockage flat. President-elect Joe Biden has proposed adopting the top tax amount to 39.6% and demanding basic assets at ordinary-income ante for bodies earning added than $1 actor annually. His adeptness to about-face those account into law will be bound unless Democrats win ascendancy of the Senate in Georgia’s runoffs Jan. 5, but anyone who wants to lock in the Trump-era ante with authoritativeness needs to act in 2020.
“There was a lot of abhorrence in the belly of Hollywood over how the Biden plan would affect the taxation of rights owners,” says Mr. Epstein.
In addition, some Republicans approved to abolition the appropriate accouterment for musicians in the 2017 tax check afore abandoning course, but the abstraction could resurface.
Songwriters may additionally appoint in strategies to abate accompaniment taxes afore they accomplish a sale, such as affective to a low-tax state. Mr. Dylan’s state-tax home isn’t known, although he has continued had a abode in California. The state’s aerial 13.3% income-tax amount applies to basic assets as able-bodied as to accustomed assets like wages.
An alike added circuitous address involves alleged abridged non-grantor trusts in states such as Nevada. This can be catchy and expensive, but the abstraction is to advance the song catalog’s assets alfresco of a high-tax state, so those profits accept no administration home.
“If you do it properly, afresh your archive sale, alike if you alive in California, will not be accountable to California tax,” says Bob Jason, a accomplice at administration close NKSFB LLC in Los Angeles who has brash artists on archive sales.
To be sure, Mr. Dylan’s auction acceptable banned his adeptness to arrange estate-tax planning strategies acclimated by the wealthy.
By diplomacy his archive now, he gives up the “step-up” that could absolved the amount of his songs from capital-gains taxes at his death. That favorable accouterment would accept subjected his brood alone to taxes on assets afterwards that date and alone if they sell. Afresh again, Mr. Biden has proposed to cut that account for the wealthy, alleviative afterlife as a taxable accident for those abeyant gains.
Mr. Dylan, age 79, additionally can’t use techniques to lower the catalog’s amount afterwards his afterlife during estate-tax proceedings. Without the catalog, his acreage may additionally accept beneath adeptness to advance tax payments over 15 years, which is accustomed if a block of assets are in an alive business.
In return, he has acquired clamminess and simplified his diplomacy both for himself and his heirs. Andrew Katzenstein, an acreage advocate with Proskauer Rose in Los Angeles who advises high-net-worth clients, says abounding affluent bodies accomplish such choices as they get older.
“He has got himself banknote back the bazaar is able at the everyman income-tax rates. Now he has money to absorb on things he enjoys,” he adds.
For the buyers of Mr. Dylan’s baddest catalog, there are abeyant tax allowances as well.
With absorption ante abreast celebrated lows, buyers appetite the abiding yields that music royalties affiance to provide. That has led to a blitz of deal-making. Aftermost month, songwriter Stevie Nicks awash 80% of her rights in a accord that admired her absolute archive at $100 million. Added musicians who accept awash this year accommodate Imagine Dragons and the Killers.
Individuals and U.S. investors in funds diplomacy catalogs about accept a 37% top tax amount and abundantly nondeductible accompaniment taxes, but accumulated buyers accept a 21% income-tax amount with deductible accompaniment taxes. That agency an assets beck could be account added to a association on an after-tax base than to an individual.
What’s your admired Bob Dylan song? Join the chat below.
“The assets is activity to be burdened abundant added agilely in Vivendi’s easily than it would accept been burdened in Dylan’s hands,” said Lawrence Zelenak, a Duke University law professor.
Moreover, the buyers can amortize their acquirement price, generally over 10 to 15 years. So the assets beck comes with a beck of deductions that lowers the buyer’s tax bill in a way that alone creators can’t do.
“It’s activity to be a apartment to the assets stream,” said Mark Kaplan, a accomplice at accounting close Citrin Cooperman in Beverly Hills, Calif. “If you’ve laid out $50 million, you appetite to be able to address off that $50 actor adjoin income.”
Buyers can additionally appoint in tax strategies to abbreviate accompaniment and adopted taxes. Companies about set up Delaware captivation companies that can advice them abstain accompaniment taxes, said Xuan-Thao Nguyen, an Indiana University law assistant who studies bookish property.
Abroad, she said, they can try to use captivation companies in Singapore or Luxembourg to accomplish agnate results, as they booty Mr. Dylan’s songs and go knock, knock, knockin’ on haven’s door.
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