eli5 How will DC get a tax write off for not releasing bat girl? How do tax write offs work anyways?
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Essentially it’s a business expense. When companies spend money for business purposes, they are able to write that money off at tax time to reduce their tax bill. So, spending millions to produce a movie that will not be released is an expense that they won’t recuperate through sales, and is a net loss that can be written off.
I’m sure someone with more knowledge can provide a better answer, but that’s the gist of it.
A simple example. They spent 200m on film X, they have 400m in income from that film, profit of £200m. They make bat girl for £100m, they have income from that film of £0, a loss of £100m.
When it comes to tax they have an overall of £100m profit(£200m – £100m). They are effectively taxed on the the overall profit of the company not the individual films.
In reality it’s more complicated with groups and whatnot.
You pay taxes on profits rather then income or expenses. Normally the studio would spend money making a film, then earn money from showing that film and pay taxes on the difference. Since the expenses on a film is usually made in a different year then when the income is the studio will tell the IRS how much money they think the movie is worth at the end of each year and pay the taxes on how much money they think they have earned. The remaining taxes will then be paid the year the movie is released.
With “Bat Girl” they are saying to the IRS that they think the movie is worthless. They spent all this money and have nothing to show for it. That makes their profits on this movie negative. The IRS will not be able to collect taxes on the profits because there are none. Even more DC can argue that even though they make money on “Shazam!” and “Black Adam” they have lost money on “Bat Girl” and therefore have much less profit overall. This means they get to pay taxes on the reduced profits. That being said if they then decide to continue work on “Bat Girl” or sell the rights to it they would have to pay taxes on the full profits on this. They can not claim lower profits because of all the expenses they had with the movie because these expenses was used to reduce the taxes on the other movies they released. You can not claim the same expenses twice.
Taxes apply to profits.
Profits are revenue (money coming in) minus expenses (money going out).
Lets say your lemonade stand profits are taxed at 10%. You sold $20 worth of lemonade (revenue), but also had to spend $10 to restock on lemons and sugar(expenses), you’d have $10 in profits. Taxed at 10% you owe $1 in taxes, resulting in $9 you get to take home.
The next day you still make $20 but end up having to throw away $10 of your lemon stock since they started to grow mold. Now your revenue is still $20 but your expenses are also $20, resulting in net profits of 0. 10% of 0 is 0, so you owe 0 in taxes that day and take home 0 dollars.
Clever accountants often try to write their books to count as much expenses as possible because every dollar they do so is a dollar that isn’t counted as taxable profits, but the principle is to not charge people for money they lost.
DC spent, for instance, $90 million shooting a movie but it’s bad and it doesn’t want to spend $100 million finishing and promoting it. Even a movie like The Flash is apparently pretty good.
Next quarter it will claim a $90 million loss against its earnings.
WB also doesn’t want to spend $150+ million on a movie to release on streaming.
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