WHAT IS THE HITS ACT?
What The HITS Act Does For Music
The HITS Act updated IRC §181 to give the music industry access to the same federal deduction structure used for film and television. When a sound recording is documented correctly, qualified production expenses can be deducted in the year the project begins. For independent artists, producers, labels, and investors, this means a music budget can function like a business expense rather than personal spending. Proper documentation elevates the project into a recognized business activity that supports a deduction, CPA filings, and stronger investor confidence.
What the HITS Act Does for Music?
IRC §181 allows you to treat a music project like a real business investment. Without documentation, money spent on music is often viewed as personal and receives no business treatment. With documentation, the production becomes a legitimate business operation with trackable dates, contributors, labor, and costs. This framework gives independent creators access to the same structural advantages long used in larger entertainment industries.
Who Should Use IRC §181?
IRC 181 benefits anyone who spends real money on a sound recording. Typical major label song budgets can reach six figures once production, mixing, mastering and content creation are included. Independent artists rarely work at that scale. Most indie releases fall in the two to five thousand dollar range, and IRC 181 still applies when the project is documented and treated like real business activity. This makes the deduction especially valuable for the people who often fund indie music today:
• Independent artists operating through an LLC
• Producers financing their own singles or EPs
• Private investors acting as Executive Producers
• Indie labels funding multiple small releases
• Studios managing ongoing production workflows
• CPAs supporting creative clients
• Mothers, partners, friends, and family members who paid for studio time, engineering, beats, or video costs
If anyone contributed money toward a music project, even as a favor, they can structure that expense properly and document it under §181 when the project qualifies.
How the HITS Act Works for Investors
The HITS Act is not limited to artists. Anyone who contributes to a qualified sound recording can deduct their contribution when the production is documented properly. This includes private investors, supporters, and family members who help fund independent music.
Investor Advantage:
• Deduct the qualified amount in the year production begins
• Available to individuals, LLCs, and private supporters
• Reduces taxable income when treated as a business expense
• Strengthens Executive Producer agreements and recoupment terms
• Converts informal financial help into a recognized investment
When the packet is completed correctly, you can hand the investor an audit-ready file. If an audit ever occurs, they can place the packet on the table and the IRS will have everything it needs. Even an auditor with a chip on their shoulder will not be able to challenge a production with this level of structure, documentation, and business clarity.
Why Documentation Is Required!
The IRS does not issue a standard form for IRC §181. They require evidence that:
• A sound recording was produced
• The project had a clear start date
• The spending served a business purpose
• Contributors and payments are identifiable
• Production activities were carried out
Some taxpayers have historically written this information on a notepad, and the IRS accepted it if accurate. But that approach reflects hobby-level organization. A structured packet positions your project as a professional production, protects the contributors, and gives your CPA the clarity needed to support the deduction confidently. Proper documentation is the difference between a hobby and a business in the eyes of the IRS.
How to Claim Section 181 Step by Step
Section 181 does not have a dedicated IRS form. The deduction is reported by the CPA, and the packet provides the proof.
1. Establish the production start date
Studio sessions, beat purchases, or production labor all count as valid starting points.
2. Identify contributors and roles
Artists, producers, engineers, musicians, and investors must be listed with roles and payments.
3. Track qualified production expenses
Production labor, studio time, beats, musicians, mixing, mastering, and related costs must be separated from marketing.
4. Maintain a simple production log
Session dates, work completed, and progress notes show the project operated like a real production.
5. Keep invoices, receipts, and agreements
These documents support the business purpose of each expense.
6. Give the completed packet to your CPA
The CPA references IRC §181 and applies the deduction in the year production began.
When the packet is completed correctly, it becomes your audit protection. If you are ever reviewed, you can pull out the packet, place it on the table, and the IRS has everything it needs in an organized, professional format.
License Summary, Legal Notice & Usage Terms
This packet is licensed for one project within a single tax year. Every project has its own start date, contributors, and budget, which means every project supports its own deduction under IRC §181. Organizing documentation per project strengthens the tax position and increases the number of deductions available in the same fiscal year. The cost of the packet is generally treated as a deductible expense of that project. Each project requires its own packet to maintain clean records and support each individual deduction.
Turn Your Music Production Into a Real Business Asset
If you are already spending money to create music, you should be documenting your work at the level of a professional recording company. IRC §181 allows you to treat a sound recording like a business investment, but the IRS cannot recognize a project without clear, structured documentation.
Most independent creators already spend enough to qualify, but few document their productions correctly.
This packet solves that problem. It gives you the organization, clarity, and professional workflow needed to operate with confidence and present your project to investors, studios, and CPAs as a legitimate production.
If you are ready to treat your next release like a real business investment, this is where you begin.
THREE-PACKET BUNDLE