If you have a pulse and an Internet connection, you remember when Drake took his $996,631.90 music video budget for the song “God’s Plan” and gave it all away.
In the 2018 video, which now has almost a billion views on Youtube, the Canadian rapper gives away nearly $1 million in cash, scholarships, and gifts to various people and organizations in Miami. (That million was originally allocated by Drake’s record label, Cash Money / Young Money Records, for making the music video.)
Some of the gifts included $50,000 to a woman’s shelter, stacks of cash and new cars to everyday people, and $20,000 to the Miami Fire Department, among others.
“God’s Plan” was a hit on the charts. It went on to win Best Rap song at the Grammys. Watching the music video, you can’t help but feel good and hopeful and positive. (If there’s one thing about Drake he’s all about those #feels.)
It also revealed more about Drake’s values: He helps others. He relates to everyday people and his fans. And most importantly, he prioritizes his love for his bed and his mother above all else.
On Instagram, Drake even said the music video was “the most important thing I have ever done in my career.”
But with tax season upon us, one important question does come to mind: What are the tax implications of this million dollar giveaway? For Drake, his record label, and the gift recipients?
First, some assumptions…
We’re guessing Drake didn’t take a fee for his part in the music video (i.e. no income for this). And we’re assuming he didn’t put up any of his own personal money as part of the $1 million. Rather, everything indicates that it came from his label, Cash Money Records. Drake was simply the middle-man who handed that money away. So Drake, personally, wouldn’t be affected on this million bucks.
As a result, the tax implications fall on Cash Money Records.
For more insight, I turned to Jacques Beausoleil, Quality Lead at Bench Accounting, North America’s largest bookkeeping service.
According to Beausoleil: “If a business like Cash Money Records wants to make a video, the IRS is really looking for them to claim expenses that are related to the cost of normal business-related activities — in their case, producing a video and promoting it to generate a return.”
So there’s an important distinction here. There are business-related expenses — for example, a camera operator’s paycheck, fees for the music video’s director Karena Evans, flights and lodging for crew, the cost of lighting and craft services and security personnel, and the editing company that eventually edits the video, among other costs. All these count as business expenses in the eyes of the IRS, and would be tax deductible for Cash Money Records.
All of the folks who were paid money in relation to the production would need to report it as income on their own returns (whether that’s a 1099 or their own individual business taxes).
And then there’s a separate category: the stuff Drake gives away.
“So when Drake is going up to someone and giving them $50,000 in cash, that’s not what would be considered a traditional expense for the creation of the video,” Beausoleil says.
“Charitable donations are not considered a “business expense” in that they don’t reduce your taxable income from business, but you can use charitable donations to reduce how much taxes you end up paying in the end.”
Ideally, Beausoleil says, it would make more sense if Cash Money set up a 501(c)(3) charity entity and operated through that charity to give the money away.
“So the question is, did Cash Money Records set up a charity and put a million dollars in that charity and then use that to spread it out?”
I reached out to Cash Money for this piece, but didn’t hear back.
So that covers Drake and Cash Money. But what about all the gift recipients?
Are they on the hook to pay any taxes?
If they were the ones who received hard cash, cars, tuitions, shopping sprees, or toys, they won’t have to pay taxes on it as long as the money was funneled through a charity and given as a donation from the charity.
“If it wasn’t done through a charity or scholarship or some other type of recognized non-profit middle man, it would probably be a taxable benefit to the individuals receiving the money,” Beausoleil says. It’s like when you’re taxed on a bonus you receive at work.
Then there were several organizations that received large donations in the video, like the City of Miami Fire Department, Lotus Home Women’s Shelter, and University of Miami’s Frost School of Music. Will they have to report these donations in their 2018 taxes?
“They’ll definitely have to report them,” according to Beausoleil. “But those entities are probably all non-profits, so they are tax exempt.” So, they won’t be paying taxes on it.
Of course a larger, more general question came up: Drake has dual-citizenship in the U.S. and Canada. Does he pay taxes in the U.S.? In Canada? Both?
“Probably both,” Beausoleil says. “If he is a citizen of the US, he has to pay taxes regardless of where he lives throughout the tax year. Canada has some different tax laws, you have to spend a certain amount of time in the country or own property. He’s going to have to file with both countries, but whether he’ll have to pay taxes with both is a different question.”
Hopefully Drake’s CPA is competent in these sorts of matters, because to be honest it sounds pretty confusing.
Back to the song “God’s Plan”…
On the song, Drake sings: “Bad things. It’s a lot of bad things that they wishin’ and wishin’ and wishin’ and wishin’ on me.”
Whatever his haters have to say, Drake is gonna Drake. And we’re here for it. Especially if it does so much good for others (including us, the fans).
Perhaps the tax implications of this giveaway were the first thing on your mind while watching the video, like it was with me. All said and done, taxes and all, it seems like giving away that million was more than worth it.