Entity Setup
Entity Setup Tip: Using Qualified Sound Recording Production Deductions Under OBBBA’s Section 168(k)
Sound recording producers can now access first-year depreciation deductions under the modified 168(k) rules—this article helps professionals structure production entities to safely leverage these benefits.
By NomadicTax Research Team • 5-8 min read • June 23, 2026
## What’s New Under Section 168(k) & OBBBA
The **One, Big, Beautiful Bill Act (enacted July 4, 2025)** amended **§ 168(k)** and **§ 181** to include **qualified sound recording productions** as eligible property for additional first-year depreciation. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai)) Previously, § 181 allowed deductions only for certain limited sound recording productions, but under OBBBA, those productions can now be treated as **qualified property** under § 168(k)(2) for bonus depreciation. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
Productions commencing in taxable years ending **after July 4, 2025** are eligible, with specified “sound recordings” placed in service at the **initial release or broadcast**. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## Structuring Your Entity & Production Strategy
- **Forming a dedicated production entity** (LLC, S-Corp, etc.) can help track production costs separately, making it easier to claim depreciation.
- Ensure all production expenses and rights (recording, artist payments, marketing) are capitalized in line with § 181 / § 168 definitions. Proper cost accounting is crucial.
- If multiple productions are ongoing, keep separate records by production as “qualified sound recording production” to avoid mixing placed in service dates or eligibility criteria.
## Maximizing the Deduction: Practical Steps
1. **Timing matters**: Productions must commence after **July 4, 2025**, and the taxable year must be one that ends after that date. Plan production schedules accordingly.
2. **Ensure release or broadcast date** is clearly documented as that is considered the date property is “placed in service” for § 168(k)(2)(H).
3. **Cap application**: There remains a cap—e.g., production costs subject to caps in § 181 were retained. Understand your budget size vs. eligible cap.
4. **Make any elections** timely under § 168(k)(5) or § 168(k)(10), as applicable. Elections affect whether property qualifies and how deductions are computed.
## Examples
- A small record label produces an album starting August 2025, releases in January 2026. The album qualifies for bonus depreciation under § 168(k). The producer or their entity tracks all expenditures, releases via streaming platforms—release date documented.
- A single business doing multiple productions should treat each sound recording separately if possible, helping claim depreciation per production, and avoid mixing ineligible productions.
## Entity Setup and Tax Planning Implications
- Choosing a **flow-through entity** (like an LLC taxed as partnership or S-Corp) may benefit smaller producers, allowing owners to claim depreciation (through distributions) and enjoy pass-through losses.
- Larger productions may benefit from C-Council or large LLC status to use bonus depreciation fully if capital investment is substantial.
- Consider state tax laws: not all states allow bonus first-year depreciation per federal rules; track state conformity.
## Final Thoughts
OBBBA’s changes to § 168(k) open new opportunities for producers. By setting up entities properly, timing productions post-July 4, 2025, and keeping meticulous cost and release records, producers can maximize bonus depreciation benefits. Missteps may cost eligibility—work with tax counsel to ensure compliance with IRS definitions and upcoming proposed regulation adjustments as interim guidance transitions to finalized rules.