Original air date: July 20, 2017 Rebroadcast and recording info at http://www.mhmcpa.com Minimizing taxes can help provide for capital that can be used to fund growth of your business. We will discuss practical strategies for saving your company real dollars that include: Tax Savings opportunities for US manufacturers R&D Tax credit opportunities you may not have considered Maximizing the deduction for the acquisition of capital assets Determining if your business should be operating in an S Corporation, C Corporation or Partnership Content for this course is intended for finance professionals at all levels.

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CBIZ & MHM
Executive Education Series™
Are You Leaving Too Much on the Table?
Tax Saving Strategies for Growing Businesses
Lewis Taub & Adam Thalman
July 20, 2017 & Aug. 10, 2017

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About Us
• Together, CBIZ & MHM are a Top Ten accounting provider
• Offices in most major markets
• Tax, audit and attest and advisory services
• Over 2,900 professionals nationwide
A member of Kreston International
A global network of independent
accounting firms
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting,
tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms.

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CPE Credit
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Disclaimer
The information in this Executive Education Series
course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further
discuss the impact on your business.

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Presenters
Lewis Taub has more than 25 years of experience advising closely-held
middle-market companies in a wide variety of industries, with an
emphasis on consumer products. He has significant experience with tax
matters related to private, multistate and multinational pass through
entities including S corporations and partnerships, as well as high-net-
worth individuals. Lewis also has significant expertise in tax planning for
private equity groups that invest in businesses.
As a recognized industry leader, Lewis is often quoted in popular media
outlets including The Wall Street Journal, Crain’s New York Business, and
Accounting Today. Additionally, he has authored numerous articles for
industry publications and lectures frequently at public programs and
private events.
He shares his expertise by conducting continuing professional education
courses and by being an active contributor to the S Corporation
Technical Resource Committee of the American Institute of Certified
Public Accountants. He served as an adjunct professor at Fordham
University’s Graduate School of Business. Prior to joining the
organization, Lewis was a Director in the New York commercial group of
a large international accounting firm.
212.790.5709 • ltaub@cbiz.com
Lewis Taub, CPA
CBIZ Managing Director
MHM Shareholder

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Presenters
Adam Thalman, CPA, is a manager in the company’s New York Tax
Practice with over 10 years of experience in public accounting. Adam
provides tax, accounting, and business consulting services to
corporations, partnerships and individuals primarily in manufacturing,
distribution, technology and real estate industries. He takes a hands-on
approach with his clients and is actively involved in tax planning,
consulting and gaining an in-depth understanding of their business.
Prior to becoming a CPA, Adam owned his own small business and his
clients have benefited from the unique perspective that he brings them.
212.790.5730 • athalman@cbiz.com
Adam Thalman, CPA
CBIZ Tax Manager

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Agenda
The Domestic Production Deduction
02
01
03
04
Are You Missing the Research and Development Credit?
S Corporation, C Corporation, Partnership? Minimizing the Tax
2017 Depreciation Rules for Capital Assets
05 Questions

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THE DOMESTIC PRODUCTION DEDUCTION
SECTION 199 OF THE INTERNAL REVENUE CODE

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The Domestic Production Deduction
Why is this important to consider?
• In 2017, the deduction is 9 percent of the lesser of taxable
income or “qualified production activities income.”
• The deduction cannot exceed 50 percent of the W-2
wages allocable to domestic production.

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The Domestic Production Deduction
What activities are eligible for the deduction?
• The obvious one:
• The manufacture, production, growth of tangible personal property in
the U.S.

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The Domestic Production Deduction
What activities are eligible for the deduction?
• The not-so-obvious ones:
• Construction of real property in the U.S.
• Performance of engineering or architectural services in the U.S. in
connection with real property construction projects in the U.S.

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The Domestic Production Deduction
What activities are eligible for the deduction?
• Construction
• Residential or commercial buildings, permanent land improvements
(swimming pools, parking lots)
• Includes machinery which is a structural component such as an elevator
• Businesses conducting eligible construction activities include:
• Residential remodelers, commercial building constructors, electrical,
plumbing, heating and air conditioning contractors

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The Domestic Production Deduction
What activities are eligible for the deduction?
• Engineering and Architecture
• Eligible expenses include construction, investigation, evaluation,
planning, design, and construction supervision.

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The Domestic Production Deduction
• Is that all there is?
• Does the deduction apply to any
other activities?
There is much more!

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The Domestic Production Deduction
The Deduction also applies to:
• Any lease, rental, license, sale, exchange, or other disposition of
• “Qualifying production property” (QPP) that was manufactured,
produced, grown, or extracted (MPGE) by the taxpayer in whole
or in significant part within the United States;
• Any qualified film produced by the taxpayer; or
• Electricity, natural gas, or potable water produced by the taxpayer
in the United States

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The Domestic Production Deduction
What is “qualifying production property”?
Tangible personal
property
Computer
software
Sound recordings

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The Domestic Production Deduction
• Qualified film produced by the tax payer:
• Any films and video tapes if not less than 50 percent of the
total compensation is compensation for services performed
in the United States by actors, production personnel,
directors, and producers
• A qualified film includes any copyrights, trademarks, or
other intangibles with respect to such.

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The Domestic Production Deduction
Recent decisions reflecting applicability of the deduction:
• CCA 201302017
• A taxpayer that constructed both mobile and traditional
billboards and rented advertising space on those billboards.
• IRS Chief Counsel concluded that mobile billboards are
tangible personal property and may qualify for the Domestic
Production Deduction, while traditional billboards are real
property and thus do not qualify for the DPAD.
• The CCA stated that mobile billboards are intended to be
moved frequently and thus are not real property.
• Therefore, the construction of the mobile billboard qualified
for the deduction.

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The Domestic Production Deduction
Recent decisions reflecting applicability of the deduction:
• FAA 20133302F
• IRS concluded that a retail pharmacy’s photo processing and
printing activities through which the taxpayer produced photo-
related products, such as photo prints and photo books,
qualified for the Deduction.
• The IRS counsel stated that the taxpayer, using its own
equipment, used raw materials (the photo paper, ink and
other chemicals) to produce a different tangible product in
form and function — finished photos or photo books — that
were then sold to its customers.

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The Domestic Production Deduction
• Recent decisions reflecting applicability of the deduction
• CCA 201313020
• The IRS concluded that the taxpayer’s publishing activities for
electronic books did not qualify for the Domestic Production
Deduction.
• The IRS noted that the taxpayer’s market research, content
and layout development, and editing were activities that
resulted in the taxpayer creating an electronic version of a
book.

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The Domestic Production Deduction
The taxpayer’s electronic version
of a book had the same layout
and design as the book would
have if printed and bound, but
the IRS stated that the electronic
version of the book is not tangible
personal property or computer
software so it does not qualify for
the DPAD.

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The Domestic Production Deduction
The Takeaway
 Are you missing this valuable deduction?
 How many other 9% deductions do you
know?

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Are You Missing the Research and Development Credit?

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Are You Missing the Research and Development Credit?
Not for me?
• Often it is presumed that the research and
development credit is only applicable to high-tech
companies.
• Developing new medicines?
• Developing new recycling methods?
• A company is the life-sciences industry?

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Are You Missing the Research and Development Credit?
• In today’s competitive economy, where businesses
are constantly attempting to improve their products
and methodologies, the credit can potentially apply to
a wide range of such activities.
• Generally, if a business employs engineers or
technical personnel who are developing or improving
products or manufacturing processes, the business
should be able to take advantage of the R&D credit.

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There are four criteria
(the four-part test) for
determining whether activities
qualify for the R&D credit.
Are You Missing the Research and Development Credit?
How the credit works:

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Are You Missing the Research and Development Credit?
1. The activity must be technological in nature.
• The activity must be based on principles of these hard
sciences:
Engineering
Computer Sciences
Physical Sciences
Biological Sciences

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Are You Missing the Research and Development Credit?
2. The activity must be for a permitted purpose.
• The activity must involve the creation of a new or
improved level of:
Function
Performance
Reliability
Quality

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Are You Missing the Research and Development Credit?
3. The activity must involve the elimination of
uncertainty.
• The activity must explore what was not known at the
start of the project.
• Can we develop it?
Capability
uncertainty
• How will we develop it?
Methodology
uncertainty
• What is the appropriate design?Design uncertainty

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Are You Missing the Research and Development Credit?
4. The activity must involve a process of
experimentation.
• Substantially all of the activities must include elements
of experimentation.
Evaluating one or more alternatives
Performing testing or modeling
Examining and analyzing hypotheses
Refining or abandoning hypotheses

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Are You Missing the Research and Development Credit?
• Recently, we have seen R&D opportunities in these
industries:
Food and beverage
Apparel
Architecture and
engineering

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Are You Missing the Research and Development Credit?
• In the food and beverage industry, these activities
could qualify:
• Incorporating new or sustainable ingredients in a
formula
• Improving the taste, texture or nutritional content of
food product formulations
• Producing sample batches in a test kitchen or a pilot
run

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Are You Missing the Research and Development Credit?
• In the apparel industry, these activities could qualify:
• Functional improvements to weaving techniques
• Improved garment material formulation
• New and more efficient manufacturing process

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The Domestic Production Deduction
Be aware of the research
and development credit
or you may be leaving
MONEY ON THE TABLE!

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S Corporation, C Corporation, Partnership?
Minimizing the Tax

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• The historical perspective
• Single level of taxation makes the S corporation the
entity of choice
• Nothing else to consider

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• American Taxpayer Relief Act of 2012
• Does this change the way we look at S corporations?
• Is there a better alternative?

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S Corporation, C Corporation, Partnership? Minimizing the Tax
If taxable income is The tax is
Not over $17,850 10% of the taxable income
Over $17,850 but not over $72,500 $1,785 plus 15% of the excess over $17,850
Over $72,500 but not over $146,400 $9,982.50 plus 25% of the excess over $72,500
Over $146,400 but not over $223,050 $28,457.50 plus 28% of the excess over $146,400
Over $223,050 but not over $398,350 $49,919.50 plus 33% of the excess over $223,050
Over $398,350 but not over $450,000 $107,768.50 plus 35% of the excess over $398,350
Over $450,000 $125,846 plus $39.6% of the excess over $450,000

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S Corporation, C Corporation, Partnership? Minimizing the Tax
Over But not over Tax is Of the amount over
$0 50,000 15% $0
50,000 75,000 7,500 + 25% 50,000
75,000 100,000 13,750 + 34% 75,000
100,000 335,000 22,250 + 39% 100,000
335,000 10,000,000 113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000
15,000,000 18,333,333 5,150,000 + 38% 15,000,000
18,333,333 ------ 35% 0

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• Federal tax rate comparison
• Will corporate tax rates decrease?
• Anything else in the computation?
• The Medicare tax!!!!
Highest Individual Rate Highest Corporate Rate
39.6% 35%

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• The Medicare Tax
• 3.8% of the lesser of:
1. Net investment income or
2. The excess of modified adjusted gross income (MAGI)
over an threshold amount
 $250,000 for joint filers or surviving spouses
 $125,000 for a married individual filing a separate return
 $200,000 in any other case

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• The C corporation looks better?
• What if the entity has significant long-term capital gains,
interest?
• C corporation tax rate 35%
• S corporation tax rate 23.8%
• Dividends?
• C corporation
• 35 % after dividend-received deduction
• S corporation
• 23.8%

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• The tax rate conundrum
• It may be easy to paint a picture where the tax rates
suggest that the C corporation is more advantageous
than an S corporation, but
• Is that all there is?
• Certainly clients looks for us to consider other factors

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• What about converting an entity from an corporation
to a partnership?
• Treated as a liquidation
• Gain on assets — inventory, manufacturing equipment

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• A better exit strategy
• Buyers want to buy assets
• Sellers want to sell stock
• A Section 338 election for a C corporation?
• No way!
• A Section 338(h)(10) election for the sale of an
S corporation?
• Absolutely!
• An S corporation may sell for more than a C corporation
because assets can be purchased

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• Adjustment of stock basis
• A valuable advantage of the S corporation and the
partnership
• However, the computation must be accurate
• Moore v. Commissioner 2013

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S Corporation, C Corporation, Partnership? Minimizing the Tax
• The Section 179 deduction
• Section 179(d)(6)(A) provides that for the purpose of
the Section 179 limitation all “component members” of
a controlled group are treated as one taxpayer
• Relevant to both C and S corporations?

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S Corporation, C Corporation, Partnership? Minimizing the Tax
Making the Decision:
It’s not just about tax rates!

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2017 Depreciation Rules for Capital Assets

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S Corporation, C Corporation, Partnership? Minimizing the Tax
Section 179 deduction
• 2017 Deduction Limit = $500,000
This deduction is good on new and used equipment,
as well as off-the-shelf software. To take the
deduction for tax year 2017, the equipment must be
financed/purchased and put into service between
January 1, 2017 and the end of the day on December
31, 2017.

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S Corporation, C Corporation, Partnership? Minimizing the Tax
Section 179 deduction
• 2017 spending cap on equipment purchases is
$2,000,000
This is the maximum amount that can be spent on
equipment before the Section 179 Deduction
available to your company begins to be reduced on a
dollar for dollar basis. This spending cap makes
Section 179 a true "small business tax incentive"
(because larger businesses that spend more than $2.5
million on equipment won't get the deduction.)

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S Corporation, C Corporation, Partnership? Minimizing the Tax
Section 179 deduction
• Bonus Depreciation: 50% for 2017
Bonus Depreciation is generally taken after the
Section 179 Spending limit is reached.
• Bonus Depreciation is available for new equipment
only; used equipment qualifies for Section 179
Deduction, but does not qualify for Bonus
Depreciation.

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?
QUESTIONS

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Contact Information
212.790.5709 • ltaub@cbiz.com
Lewis Taub, CPA
CBIZ Managing Director
MHM Shareholder
Adam Thalman, CPA
CBIZ Tax Manager
212.790.5730 • athalman@cbiz.com

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If You Enjoyed This Webinar…
Upcoming Courses:
• 7/21: Financial Instruments – Preparing for the New FASB Requirements
• 7/24 & 7/31: The Taxing Element of the New Revenue Recognition Guidance
• 7/26 & 8/3: The New Leasing Standard – Your Questions Answered
• 7/27 & 8/1: Eye on Washington – Quarterly Business Tax Update
Recent Publications:
• Tax Court Serves 'Hardy' Helping of Self-Employment Tax Surprises
• Tax Reform Discussion May Revive the Camp Plan
• Full Disclosure: A Guide to Revenue Recognition Disclosures under ASC Topic
606
• Consolidation Proposal and Other Developments from Q2 2017

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THANK YOU
CBIZ & Mayer Hoffman McCann P.C.
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