Did Bob Dylan promote his life’s work for tax causes?
Earlier this month, Bob Dylan sold the rights to his 60-year-old personal music catalog to Universal Music Publishing Group. Although the retail price is unknown, his songs have been valued at around $ 300 million.
By selling the rights, Dylan no longer charges license fees for the use of his songs. In fact, he may have to pay royalties to the new owners to use the exact songs he created. So it appears that he has opted for a high cash payout to give up future sources of income from his music.
What would motivate him to sell his music now?
Some have speculated that it was for tax reasons. It is believed that the Biden government would impose higher tax rates for high-income individuals. Even if Republicans retain control of the Senate for the next year, they are likely to agree to higher rates in exchange for other concessions.
If he sells his music now, he will benefit from lower tax rates on investment income while those rates continue.
But there are things we don’t know. For example, what is his taxable profit? One way to minimize capital gains taxes is to calculate your cost base in your music. To do this, we need to know how much money Dylan spent creating his songs. Expenses such as studio recording and manager fees to name a few. Or did he buy his own studio equipment? If so, how much depreciation did he take on the equipment?
Dylan wasn’t the only one selling the rights to his songs. Stevie Nicks sold 80% of the copyrights to her songs, which were valued at $ 100 million. Taylor Swift sold the rights to her first six albums for $ 300 million.
By selling the songs, Dylan will likely avoid paying higher state taxes in the future. Some states have lost income and sales tax revenues due to the coronavirus. In addition, some will be more expensive, mainly due to jobless claims. States will make up for this deficit by continuing to tax people with higher incomes.
The corporate buyers of copyrights are (at least temporarily) treated more favorably in terms of income tax. Licensing and streaming income is subject to the lower corporate tax rate of 21%. However, this favorable tax rate is likely to be on the chopping block. Whether it will return to the old course or a slightly higher course remains to be seen.
There could be other, tax-free reasons for the sale. Perhaps the revenue streams from licensing are not as high as they were before. And there is hardly any money from live concerts. Or maybe Dylan just needed the money.
The tax planning strategy of selling assets before a tax rate hike (whether real or proposed) is nothing new. People take this opportunity to sell businesses, important assets, or real estate. When the timing is right, the tax savings can be huge. However, selling a vital asset like copyright to your songs is not an easy decision. Because you are gambling and you may be wrong.
Steven Chung is a tax attorney based in Los Angeles, California. He helps people with basic tax planning and tax dispute resolution. He is also personable with people with large student loans. He can be reached by email at email@example.com. Or you can connect with him on Twitter (@stevenchung) and connect with him LinkedIn.