They’ve just cancelled their upcoming film “Coyote vs. Acme,” and everyone is calling it a tax write-off, just like they did with the cancelled Batgirl film.
Having spent so much on the production of these films, how is it beneficial to them to cancel the film outright? What is a tax write-off in that sense?
In: Economics
It means that they didn’t turn a profit and are able to reduce their tax basis by the amount of money that they lost on the project.
For example, let’s say that I am a business and I spend $1000 on project A and $2000 on project B. Project A is a success and earns $1500 in revenue. The $500 in profit is taxable. Project B is a failure and only earns $1700 in revenue, with a net loss of $300.
Because I lost $300 on project B, I can deduct that amount from my income, giving me an adjusted gross income of $200. If my tax rate is 30%, then that means I pay 30% of $200 (instead of $500), giving me a total tax burden of $60 (instead of $150).
The end result is that losing $300 allowed me to save $90 in taxes. It’s still a net loss of $21`0, but it’s not as bad compared to if both projects were treated as individually taxed entities.
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