Catfish Chronicles Vol. 2 – Tax Write Off Season

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I can’t believe that in 7 weeks it will be 2015.  Time has flown by so fast.  I feel like just yesterday we were discussing Chief Keef’s sophomore album, Trinidad James, Ice JJ Fish, and still awaiting the return to civilization of Lil Boosie.  Now that all those things are firmly behind us, it’s time to focus on the remaining 7 weeks, and the phenomenon that will be sweeping the music industry for the rest of the 4th quarter.  And that, my friends is none other than Tax Write Off Season.

Major record labels, much like other large corporations, operate on a fiscal calendar very close to the actual calendar.  They have to create budgets, and finalize their finances at the end of every year to make sure they’re square with the IRS.  Unlike say a pro sports franchise, which has a clearly defined offseason with which to reconcile budgets and plan for the next year, there’s no such window for most businesses.  They have to artificially create an offseason, and that’s when they go into spending freezes.  This is a period of time when you basically close off your budget for the rest of the year, spend everything you have left so you can go back to zero, and begin planning for the next year.

In conjunction with most spending freezes, companies usually also begin preparing their financial information in preparation of next year’s tax filings.  This means justifying profits with losses, along with categorizing items which can be written off.  A lot of what occurs in the entertainment industry can be written off as a work-related expenditure for tax purposes.  Which basically means that since you were spending your money to fund something required by your occupation you usually get some sort of tax break or refund when taxes are filed.  This can include things such as marketing for an album, promo tours, schmoozing of radio DJ’s, late night TV spots, etc.

In the music industry, this combination of spending freezes along with itemizing all work-related expenditures usually reveals itself in a flurry of underpromoted, undershipped, generally underwhelming albums that get released between October and December.  I refer to this window as Tax Write Off Season because albums are released for the sole purpose of being able to write off certain expenses related to that project, or to shuffle accounting items around that originally occurred earlier in the year.  That throwaway Christmas album that seemed like your favorite artist recorded it in their sleep? Chances are they most certainly “mailed it in” in order to appease the record label and help them increase their number of tax write offs.  The album that seemed like it dropped without much fanfare or promotion, or was rushed to be released before the end of the year?  You guessed it: tax write off.

It’s important to note that these expenditures are not itemized for each individual album released.  So for example if a label has a $50M marketing budget it looks a lot better for the label if they say they put out 50 albums that calendar year as opposed to 27, even though it wouldn’t have been spent equally among all 50 of those albums.  How this looks in practice is that a record label will spend a bunch of money promoting a few albums, spend very little promoting many albums, and then adjust the numbers to appear that they spend an equal amount on each album for tax purposes.  So when an album you were anticipating is released without a radio single, that’s a purposely calculated move to tick another box saying that the label has released one more album that year. In actuality, the label probably doesn’t even have promotional money to spend because like I mentioned they’re most likely in an end of the year spending freeze so they can get all their budgeting in order to begin the next year.

For an example of an album released as a tax write off, I want to point to the recent release of “Ohio” by Maybach Music Group artist Stalley.  The album was dropped with very little fanfare about a week ago, and the first week numbers are in.  For a rapper signed to a record label as big as Atlantic Records and with backing from the Rick Ross fueled MMG, selling 10,000 copies is quite frankly embarrassing.  Or, if you look at it from a tax write off point of view, a smashing success.  The album has very few samples on it, meaning they didn’t have to pay to clear those samples.  The majority of the album was produced by long-time Stalley collaborator Rashad, who is dope in his own right by the way.  There are a few collaborators but besides Nipsey Hussle and De La Soul – random – the rest are also signed to Atlantic Records, so I’m sure lining those up wasn’t very difficult.  Lastly, there are no graphics on the front of the album cover either.  All those things add up to one conclusion: the album was very cheap to produce and manufacture and put out.  For a company most likely in a spending freeze anyway, I’m sure this cost-effectiveness wasn’t coincidental.

For Atlantic Records they get to cheaply release another album before year’s end so they can do their accounting magic on the back end.  Since very little was spent putting it together, I’m sure any record sales of “Ohio” are viewed as a bonus.  There aren’t any Stalley radio singles burning up the charts either, meaning Atlantic was able to cut costs by not having to solicit payola either.  All in all, this was a very successful endeavor for Atlantic Records that accomplishes most of their tax write off season goals.  And for Stalley, well, at least he gets to say he has released his debut album.

There are some albums that just as a consequence of circumstances are released between October and December that aren’t intended to be tax write off albums.  A few Kanye West releases come to mind.  The other vast majority though are rushed out and released in a manner very similar to the way Atlantic Records handled this recent Stalley release.  Keep that in mind the next time your favorite artist unexpectedly announces they’re releasing a new album in the winter.  Or worse, when an album you’re anticipating gets pushed back into the dreaded #TaxWriteOffSeason.

Ask Clue.

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About the Author

Aaron West