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
Companies get taxed on their profits. The basic explanation is if they make $1,000,000 and they had $800,000 in expenses then they had $200,000 in profit. So they get taxed on that, say 20% and pay $40,000.
But in reality, it’s not that simple. A company can’t claim all their expenses right away. Lets say $10,000 of that was for a movie camera, then the company isn’t worse off. They have $10,000 less, but also a $10,000 camera. So they are in an equal position. But a camera doesn’t last forever, so the government says you can add that cameras cost to your expenses over 5 years. After 5 years they assume it is either worn out or obsolete and has no value. But maybe you buy it and then it gets broken after 1 year, then you can say “Hey government, I know you think this would last 5 years, but it’s broken now, it has no value. I want to deduct it all from my income right now” and they ok.
So when they spend $70,000,000 to make a film, the company isn’t $70,000,000 poorer, since they should now have a film worth more than $70,000,000. They can deduct the $70,000,000 from their income over X years as the value of the film decreases. Or, they can say the film is utter garbage, it’s worth $0 and we are throwing it in the trash and we want our deduction now.
It’s better to take the deduction now if the cost of releasing the film will be more than it makes.
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