The Help Independent Tracks Succeed (HITS) Act is part of the One Big Beautiful Bill Act, commonly referred to as the OBBBA or OB3. The tax legislation package is a major step forward and a landmark win for independent musicians, producers and small labels. This new law updates the tax code to give music creators the same treatment long enjoyed by film, television and theater productions.
What Does the HITS Act Do?
- Immediate Tax Deduction: Independent artists can now deduct up to $150,000 in qualified sound recording production expenses in the year those costs are incurred, rather than spreading deductions over several years. The law applies to albums, EPs, singles and even digital-only releases if they are recorded and produced in the United States.
- Preserves State Authority on AI Protections: The final version of the bill also ensures states retain the ability to safeguard artists from unauthorized AI use of their voices, likeness or creative work, which is crucial in the ever-evolving digital world we live in today.
Who Qualifies Under the HITS Act?
- Independent musicians, songwriters, producers and record labels with eligible recording expenses for new sound recordings produced and recorded in the U.S.
What Expenses Are Covered Under the HITS Act?
- Studio rentals
- Engineer and producer fees
- Mixing and mastering
- Session musicians,
- Equipment rentals.
What Is Not Covered Under the HITS Act?
- Marketing costs, touring costs and distribution costs are not eligible expenses under the HITS immediate deduction.
Why Does the HITS Act Matter?
Previously, for tax purposes, creators had to amortize production costs over the economic life of the intangible, which is set at 15 years under code section 197, even if the economic life was shorter. This resulted in slowed cash flow and made it more challenging for independent artists to reinvest in new projects, marketing or touring. The HITS Act allows the $150,000 deduction immediately in the year of expense and eliminates the need to amortize over the required useful life of 15 years. For example, if an artist spends $50,000 on recording an album:
- Before HITS Act: The deduction would be $3,333 per year for 15 years.
- After HITS Act: Deduction of the full $50,000 in the current year, reducing taxable income immediately.
Withum’s Theatre and Entertainment Services Team specializes in servicing clients in the music industry. If you are an independent artist, producer, label or business manager with questions on how to navigate the new HITS Act provisions, Withum is your one-stop resource. Withum can help guide clients to maximize their deductions and reinvest confidently in their creative ventures.
Author: Jessica Cronin, CPA | [email protected]
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