7 The tax bracket for the lowest income earners is proposed to be raised to 15%. The current capital gains rate (for most taxpayers) is 15%. Why do you care? Because capital gains rates are generally lower than the rates charged to regular income. All self-created intellectual property will be treated as non-capital assets, so any profit from sale will be taxed at ordinary income rates. The TCAJA removes this exemption and the exemption for patents as well. 5 This fairly laborious process requires that the composer individually list each composition on their tax return for the year in which the sale or exchange takes place. This section allows the composer to “elect” capital asset status upon the sale or other exchange of a musical composition. Section 1221(b)(3) carves out an exception for musical compositions. A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by the person who created it, is not a capital asset. “Self-created patent, invention, model or design (whether or not patented), or secret formula or process are treated as a capital asset.” 3 Therefore, you would think that self-created copyrights would also qualify. Some intellectual property assets are treated as “capital assets” and thus are taxed at capital gains rates. The first change is the tax treatment on the sale of a musical composition. When reading the following paragraph, you will begin to appreciate how utterly confusing and over-complicated the tax laws are. So, at the risk of putting my loyal readers to sleep, here we go. However, as a companion, the House has released a much easier to understand summary of the changes, which takes up a mere 76 pages. 1 Buried within the 429 pages are several important changes which can have an impact on the career of a musician or composer. 1, the “Tax Cuts and Jobs Act” was introduced in the House of Representatives. But remember, this too can change, and the proposal might get put back in. The House Ways and Means committee has reinstituted the treatment of musical compositions as capital assets. UPDATE: As noted in the blog post, the proposals put forth by the tax bill can change and indeed they have. What Composers and Musicians Need to Know About the Proposed Tax Reform Bill
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