Annual Tax Seminar Capital Room, AXA Tower I Syracuse, New York

1
Annual Tax SeminarCapital Room, AXA Tower
ISyracuse, New York

• January 17, 2006

2
Agenda

• Introduction
• New Tax Law David A. Ayoub/Andrew S. Adler 3
• New Manufacturing Deduction David A. Ayoub 16
• Empire Zone Credits Trish A. Wright 29
• S Corporation and LLC Update William T.
  Kriesel 54
• Health Savings Accounts William T. Kriesel 57
• Presidents Tax Reform Panel
• and Proposals David A. Ayoub 60
• Hot Savings Ideas Panel 63
• Closing Comments / Questions 85

3

• New Tax Law
• Presented by
• David A. Ayoub, CPA
• Andrew S. Adler, CPA

4
New Tax Law

• Katrina Emergency Tax Relief Act 2005
• Charitable Contribution
• Non-related
• 100 vs. 50 AGI Limit for Cash Contributions
• No Phaseout in Itemized Deduction Calculation
• Directly-related
• No 10 Limit for C Corp for Cash Contributions
• 40 Tax Credit for Hiring Former Disaster Area
  Resident

5
New Tax Law

• Energy Tax Incentives Act of 2005
• Residential Credit
• Capped at 500 Lifetime
• Applies for 2006 and 2007
• 10 or 100 of eligible expenditures
• Example
• 10 Expenditures
• (insulation, windows, exterior doors)
• 100 Expenditures
• Advanced warm air circulating fans
• Natural gas, propane or oil furnace and hot water
  boilers
• Electric and geothermal heat pumps and central
  air conditioners

6
New Tax Law

• Commercial Deduction
• 1.80 per Square Foot for Energy Savings
  Improvements (50 test)
• .60 per Square Foot if Energy Savings
  Improvements Do Not Meet 50 test
• Applies For 2006 and 2007

7
New Tax Law

• New Home Construction Credit
• 2,000 Tax Credit For Dwelling
• Must Meet 50 Test For Heating and Cooling
• Must Be New Home and Used as Residence
• Applies 2006 and 2007

8
New Tax Law

• American Jobs Creation Act of 2004
• Significant Items Effecting 2005
• Airplane
• 15 Year Depreciation Leasehold Improvements
• 15 Year Depreciation Restaurant Property
• Sales Tax Deduction

9
New Tax Law

• New York State Tax Law Change For 2005
• Business Allocation Percentage
• Effective For Tax Years Beginning On Or After
  1/1/06
• Gives Heavier Weight to Receipts Factor
• 60 From 50 for 2006
• 80 in 2007
• 100 in 2008

10
New Tax Law

• Small Business Taxpayer
• Effective for tax years beginning on or after
  1/1/05
• Increased Income Tax Base for Purposes of
  Determining Who is a Small Business Taxpayer
  290,000 - 390,000
• Decreased Tax Rate from 6.85 to 6.5
• Limited Liability Entities
• Extended Filing Fees to 2006 and 2007 For
  Calendar Year Taxpayers

11
New Tax Law

• Qualified Emerging Technology Companies
• Effective For Tax Years Beginning on or after
  1/1/05
• Credit Equals Sum of
• 18 of Property Used in RD
• plus
• 18 of Testing, Inspection and Quality Control
  Cost
• plus
• 9 of Qualified Research Expenses
• plus
• High-Tech Training Expenditures up to 4,000 per
  Employee, Per Year

12
New Tax Law

• Security Training Tax Credit
• The tax credit equals 3,000 per qualified
  officer. Taxpayer must own the qualified
  building.
• Tax Department is awaiting guidance from State
  Office of Homeland Security to define certain
  parameters.
• Credit is refundable and available under personal
  income tax as well
• Effective for Tax Years Beginning on or after
  1/1/05

13
New Tax Law

• Special Mortgage Recording Tax Credit
• Credit for the amount of special additional
  mortgage tax you paid effective for tax years
  beginning on or after 1/1/04
• Claimed by the lender or borrower that paid the
  special additional mortgage recording tax
• Not allowed if the real property is located in
  Erie County or any of the counties within the
  Metropolitan Commuter Transportation District
• Individuals claim credit on Form IT-256
• Corporations claim credit on Form CT-43

14
New Tax Law

• E-Filing Requirements
• Mandatory for certain 2005 Individual Tax Returns
• Exception for Paper Tax Returns Including 2D
  Barcode Form (year 2005 only)
• Taxpayers opt out by using Form IT-800

15
New Tax Law

• Nursing Home Assessment Credit
• Effective for tax years beginning on or after
  1/1/05
• Available for amount of assessment imposed on a
  residential health care facility pursuant to
  Public Health Law section 2807-d(2)(b)
• The assessment must be separately stated and must
  be paid directly by the individual taxpayer
  claiming the credit
• Credit equals the assessment amount separately
  stated on the bill
• Credit is claimed on Form IT-258

16

• New Manufacturing Deduction
• Presented by
• David A. Ayoub, CPA

17
New Manufacturing Deduction

• Created by the AJCA of 2004
• Deduction for Qualified Production Activities
  Income (QPAI) of the taxpayer
• Replaces more narrowly focused income exclusion
  for manufacturing exports

18
New Manufacturing Deduction

• Calculation of the deduction
• Gross receipts directly derived from QPA (DPGR)
• Less the sum of
• Cost of goods sold allocable to such receipts
• Other deductions directly allocable to such
  receipts
• A ratable portion of other deductions not
  directly allocable to such receipts
• Equals
• Qualified Production Activities Income (QPAI)
  multiplied by applicable rate 9 (3 in 2005)
• Equals - QPA Deduction

19
New Manufacturing Deduction

• Type of QPA
• Tangible Personal Property (TPP)
• Software
• Utilities
• Real property construction
• Engineering or Architectural services related to
  real property construction

20
New Manufacturing Deduction

• Qualifying Requirements of An Activity
• Tangible Personal Property (TPP)
• Must meet a four part test to qualify. The
  property must be
• Manufactured, Produced, Grown or Extracted
  (MPGE)
• By the taxpayer
• In whole or in significant part
• Within the United States
• TPP is any tangible property other than land,
  building, computer software, sound recordings,
  film and utilities

21
New Manufacturing Deduction

• Qualifying Requirements of An Activity
• Real Property Construction
• The construction activity must be performed in
  the US by a taxpayer in the construction trade or
  business for purposes of NAICS codes on a regular
  and ongoing basis
• Construction activities include those activities
  performed in connection with the erection or
  substantial renovation of real property

22
New Manufacturing Deduction

• Qualifying Requirements of An Activity
• Engineering or Architectural Services
• These services must be
• Performed in the US
• Related to Qualified real property construction
  projects, and
• Performed by a taxpayer engaged in the trade or
  business of producing such services for purposes
  of NAICS on a regular and ongoing basis.

23
New Manufacturing Deduction

• Determination of QPAI
• The determination is made on an Item-by-Item
  basis.
• An item means the property offered for sale to
  customers that meets all of the applicable
  requirements of the law.
• An item does not mean a whole division, product
  line or even a transaction
• If the property offered for sale does not meet
  the requirements, the taxpayer must treat the
  item as any portion of the property offered for
  sale that does meet the requirements.
  (Shrink-Back Rule)

24
New Manufacturing Deduction

• QPAI can not exceed taxable income for the year
• No deduction included in determining net
  operating loss carryforward or carryback
• QPA deduction can not exceed 50 of W-2 wages
  paid to employees during the year
• No adjustment to income for Alternative Minimum
  Tax purposes
• Deduction percentage increases to 9 in 2010
  from 3 2005-2006, 6 2007-2009

25
New Manufacturing Deduction

• Cost Allocation Methods
• IRC Section 861 Method
• Simplified Deduction Method
• Small Business Simplified Overall Method

26
New Manufacturing Deduction

• IRC Section 861 method
• Available to all taxpayers
• Allocation of all costs
• Most difficult

27
New Manufacturing Deduction

• Simplified Deduction Method
• Allocates deductions other than COGS based on a
  ratio of DPGR to total gross receipts.
• Available if
• Average annual gross receipts are 25M or less
• -or-
• Total assets at the end of the taxable year are
  10M or less

28
New Manufacturing Deduction

• Small Business Simplified Overall Method
• Allocates both COGS and other deductions based on
  the ratio of DPGR to total receipts.
• Available to taxpayers whose average annual gross
  receipts and total costs for the current year are
  5M or less.

29

• Empire Zone Credits
• Presented by
• Trish A. Wright, CPA

30
Empire Zones Program Update

• WHAT IS AN EMPIRE ZONE?
• Empire Zones are designated areas throughout the
  state that offer tax incentives to encourage
  capital investment and job creation
• Benefits include
• QEZE Tax Reduction Credit
• QEZE Real Property Tax Credit
• QEZE Sales Tax Exemption
• EZ Wage Tax Credit
• EZ Investment Tax Credit and Employment Tax
  Credit
• EZ Capital Credit

31
Empire Zones Program Update

• HOW DO I FIND OUT IF I QUALIFY?
• Contact zone coordinator and provide address of
  your business location
• Access a list of all zones and their coordinators
  at the following web site www.nylovesbiz.com/Tax
  _and_Financial_Incentives/Empire_Zones/default.asp
  
• Some local zones are
• Syracuse Marge Simcuski, Zone Coordinator
• Onondaga County Donald Western, Zone Coordinator

32
Empire Zones Program Update

• RECONFIGURATION OF CURRENT EMPIRE ZONES
• All Existing Empire Zones in NYS will be Redrawn
  by December 31, 2005
• New Areas Will Utilize Blob Theory
• Separate and Distinct Contiguous Areas
• Investment Zones City comprised of 3 Areas or
  Blobs
• Development Zones County comprised of 6 Areas
  or Blobs

33
Empire Zones Program Update

• WHAT HAPPENS IF MY BUSINESS IS NO LONGER IN THE
  EMPIRE ZONE?
• Grandfathering
• Any certified business located outside of the
  Zones redrawn areas shall be allowed the empire
  zone benefits until they are decertified.
• Businesses will be informed by letter if they are
  no longer in the zone
• If outside the blobs, a grandfathered entity
  cant increase its holdings in the zone (unless
  considered a regionally significant project)

34
Empire Zones Program Update

• WHAT IS A REGIONALLY SIGNIFICANT PROJECT?
• Business may be empire zone certified even if
  located outside the new Zones if it meets the
  following qualifications
• Manufacturer creating gt 50 jobs or,
• Agri-business, high-tech or biotech business
  creating gt 20 jobs and making a capital
  investment of 10 million dollars or,
• Financial service, insurance service, or
  distribution center creating gt 300 jobs

35
Empire Zones Program Update

• CHANGE IN EMPIRE ZONE APPLICATION PROCESS
• NYS now requires applicants to provide
  information to allow zones to utilize a
  cost/benefit analysis
• Each zone will have their own development policy
  and cost/benefit ratio
• Applications must be approved by the Zone Board
• Greater level of review at state level will lead
  to longer application process

36
Empire Zones Program Update

• MORE DETAILED INFORMATION FOR EMPIRE ZONE
  APPLICATION
• Historical Information
• Average number of employees in NYS and in the
  zone only for the last 5 years
• Current Information
• Average number of employees in NYS and in the
  zone only
• Annual wages and benefits in NYS and in the zone
  only
• Value of real and personal property in NYS and in
  the zone only
• Projected Information
• Average number of employees and expected annual
  wages and benefits for next five years
• Projected cumulative investments in real and
  personal property over next five years
• Projected property taxes

37
Empire Zones Program Update

• QEZE TAX REDUCTION CREDIT
• Qualified enterprises are allowed a credit
  against their tax equal to a percentage of taxes
  attributable to the zone enterprise
• Credit is a product of the employment increase
  factor, zone allocation factor, benefit period
  factor and tax factor.
• It is not refundable and cannot be carried
  forward to future years
• Base period utilized in employment tests reduced
  to four years for entities certified 4/1/05 and
  after
• Benefit period factor reduced to 10 years from 15
  years for entities certified after 4/1/05

38
Empire Zones Program Update

• WHAT IS THE EMPLOYMENT TEST?
• For businesses certified prior to 4/1/05, the
  employment test will be met for a taxable year if
  the employment number equals or exceeds the
  employment number in the base period both inside
  and outside the zone within NYS
• For businesses certified on or after 4/1/05, the
  employment test will be met for a taxable year if
  the employment number exceeds the employment
  number in the base period both inside and outside
  the zone and within NYS

39
Empire Zones Program Update

• EMPLOYMENT TEST DEFINITIONS
• Base Period
• Certified prior to 4/1/05 base period is the
  five taxable years prior to the test year
• Certified 4/1/05 and after
• QEZE Sales Tax three years prior to the test
  year
• QEZE Tax Reduction and Real Property Tax credits
  four taxable years prior to the taxable year
  business was certified
• Test Date
• Later of 7/1/2000 or date business became zone
  certified
• Test Year
• Last tax year of business entity ending on or
  before test date

40
Empire Zones Program Update

• WHAT IF THE BUSINESS HAS NO BASE PERIOD
  EMPLOYMENT OR YEARS?
• Entities certified after 8/1/02 must qualify as a
  new business to pass the employment test
• Entities certified on or before 8/1/02 must
  qualify as a new business to pass the employment
  test if
• The business was not formed for a valid business
  purpose and was formed solely to gain empire zone
  benefits
• Businesses must attach a notarized statement to
  their Empire Zone form detailing how the QEZE
  meets the valid business purpose test

41
Empire Zones Program Update

• WHAT IS A NEW BUSINESS?
• A new business shall include any business
  activity except a business activity which is
  substantially similar in operation and in
  ownership to an existing or previously existing
  taxpayer
• Effective for 2005, definition addresses
  identically owned and operated businesses
  operating in different counties

42
Empire Zones Program Update

• QEZE REAL PROPERTY TAX CREDIT
• Qualified enterprises are allowed a refundable
  credit against their tax equal to a percentage of
  real property taxes paid based upon increased
  employment in the zone
• Allowed for the term of the business tax benefit
  period

43
Empire Zones Program Update

• REAL PROPERTY TAX CREDIT FOR BUSINESSES
• Calculation for businesses certified prior to
  April 1, 2005
• Product of
• Real Property Taxes Paid
• Benefit Period Factor
• 100 first 10 years
• 20 reduction each year thereafter
• Employment Increase Factor
• Excess of employees in current year over test
  year
• 100 for new businesses with just one employee
• Businesses certified between 8/1/02 and 3/31/05
  are subject to other limitations

44
Empire Zones Program Update

• ELIGIBLE REAL PROPERTY TAXES
• Taxes paid and imposed on the real property owned
  by the QEZE
• Includes PILOT payments subject to certain
  limitations
• Beginning in tax years 1/1/05, taxes paid by the
  QEZE which is a lessee if all the following
  exist
• taxes must be paid by the lessee pursuant to a
  written lease agreement executed or amended on or
  after 6/1/05
• taxes become a lien on the real property during a
  taxable year in which lessee qualifies as a QEZE
• lessee has made payment to the taxing authority
  and received a receipt

45
Empire Zones Program Update

• LIMITATION FOR BUSINESSES CERTIFIED BETWEEN
  8/1/02 AND 3/31/05
• Real property tax credit is limited to the
  greater of the following
• Employment increase limitation. This is the
  product of
• 10,000 and
• the excess of the employment number in the QEZE
  for the taxable year over the QEZEs test year
  employment number
• Capital Investment Limitation

46
Empire Zones Program Update

• LIMITATION FOR BUSINESSES CERTIFIED BETWEEN
  8/1/02 AND 3/31/05
• Capital Investment Limitation. This is the
  product of
• 10 of the federal cost basis of the real
  property and the greater of
• the percentage of the real property physically
  occupied by the QEZE or a related person to the
  QEZE or
• the percentage of the cost basis attributed to
  the construction, expansion or rehabilitation (as
  opposed to purchase) of real property by the
  QEZE. Businesses with 50 or more, default to
  100.

47
Empire Zones Program Update

• LIMITATION FOR BUSINESSES CERTIFIED AFTER 4/1/05
• Applies to manufacturers or businesses located in
  an investment zone
• Amount of real property tax credit is limited to
  the greater of
• 25 of wages, health benefits and retirement
  benefits paid to NET NEW EMPLOYEES during the
  taxable year. Credit limited to 10,000 per
  employee or
• Capital investment limitation (as described
  earlier)

48
Empire Zones Program Update

• LIMITATION FOR BUSINESSES CERTIFIED AFTER 4/1/05
• Applies to businesses located in a development
  zone
• Amount of real property tax credit is limited to
  the greater of
• 25 of wages, health benefits and retirement
  benefits paid to NET NEW EMPLOYEES during the
  taxable year. Credit limited to 10,000 per
  employee adjusted by the Development Zone
  Employment Increase Factor or
• Development zone capital investment limitation

49
Empire Zones Program Update

• DEVELOPMENT ZONE EMPLOYMENT INCREASE FACTOR
• Net new employees excess of QEZEs employment
  number in empire zones over employment number for
  the base period
• Factor dependent on of net new employees
• 1 to 10 25
• 11 to 49 50
• 50 to 75 75
• Over 76 100

50
Empire Zones Program Update

• DEVELOPMENT ZONE CAPITAL INVESTMENT LIMIT
• This investment limitation is the product of
• 10 of the cost attributable to construction,
  rehabilitation of the property by the QEZE (does
  not include any acquisition costs) times
• percentage physically occupied by the QEZE or
  related person. If the percentage of such cost
  attributable to construction, rehabilitation is
  50 or greater, then the percentage will default
  to 100

51
Empire Zones Program Update

• BENEFITS OF BEING ZONE CERTIFIED
• QEZE Sales Tax Exemption
• Qualified enterprises are granted a 10-year
  exemption from State sales tax on purchases of
  goods and services (including utility service and
  owned vehicles) used predominantly in the zone
• For businesses certified before 4/1/05,
  employment test will be met if the business
  enterprise employment number in the state and in
  the zone for the taxable year equal or exceed the
  employment number in the base period. Base
  period is the five taxable years prior to the
  test date.
• For businesses certified after 4/1/05, employment
  test will be met if the business enterprise
  employment number in the state and in the zone
  for the taxable year exceeds the employment
  number in the base period. Base period is the
  three tax years prior to the test year

52
Empire Zones Program Update

• BENEFITS OF BEING ZONE CERTIFIED
• EZ WAGE TAX CREDIT
• Credit is available for up to five years for
  companies hiring full-time employees in newly
  created jobs
• Credit is 1,500 per each regular employees
• Credit is 3,000 per each targeted employee
• New businesses may claim a refund of 50 of
  unused credits. All businesses may carry forward
  unused credits indefinitely.

53
Empire Zones Program Update

• WAGE TAX CREDIT 2005 LAW CHANGES
• Expanded definition of targeted employee to
  include any honorably discharged member of any
  branch of the US armed forces
• No limitation as far as date of discharge - 20
  years ago? 1 year ago?
• Need to provide discharge papers to NYS DOL for
  documentation
• Additional investment zone credit effective
  1/1/05
• Wage tax credit increases by 500 for each
  qualifying individual who received wages in
  excess of 40,000.

54

• S Corporation and LLC Update
• Presented by
• William T. Kriesel, CPA/PFS, CFP

55
S Corporation Update

• U.S. Production Activities Deduction
• Increased shareholder limits (100)
• Aggregating family shareholder members
• Suspended loss transfers in divorce situations
• Trust revisions
• QSST pass-through of passive activity / basis
  suspended losses
• ESBT contingent beneficiary rules liberalized
• Basis not increased by debt cancellation

56
LLC and Partnership Update

• U.S. Production Activities Deduction
• Deduction of organization expenses (5,000)
• Revenue raising provisions
• 15 year amortization of excess organization
  expenses
• Transfer of partnership interest to satisfy debt
• Built in loss property transfers
• Mandatory basis adjustments in loss situations
• Profits interest revision

57

• Health Savings Accounts
• Presented by
• William T. Kriesel, CPA/PFS, CFP

58
Health Savings Accounts

• Medical IRA
• Eligible Individual
• High deductible health plan
• Not covered by any other health plan
• Not enrolled in Medicare
• Not a dependent
• High deductible health plan
• At least 1,000 / 2,000 deductible

59
Health Savings Accounts

• Distributions
• Qualified medical expenses
• Taxable
• Post eligible individual
• Deceased account owner
• Portability
• Investment options

60

• Presidents Tax Reform Panel and Proposals
• Presented by
• David A. Ayoub, CPA

61
Presidents Tax Reform Panel and Proposals

• 2 Proposals Recommended
• Simplified Income Tax (SIT) Plan
• Growth and Investment Tax (GIT) Plan
• Both repeal AMT for individuals and business
• Both very similar
• See chart

• 3 Proposals Rejected
• National Sales Tax
• Value-Added Tax
• Flat Tax

62
Presidents Tax Reform Panel and Proposals

• AMT
• Originally enacted to ensure relatively few high
  income taxpayers did not escape paying some
  personal tax
• Exemption was never indexed for inflation
• In 1987, 140,000 individuals paid AMT
• See chart
• In 2005, 3.6 Million will pay it
• Without changes, the number goes to 19 million in
  2006, 80 of individuals with incomes under
  200,000
• Cost to taxpayers in 2010, 110 Billion

63

• Hot Tax Savings Ideas
• Presented by
• David A. Ayoub, CPA
• William T. Kriesel, CPA/PFS, CFP
• Trish A. Wright, CPA

64
Hot Tax Savings Ideas

• SE Tax Planning Retirement Planning
• Use of Disregarded Entities Brownfield Credits
• Cost Segregation Dividend Tax Rates
• Family Tax Planning Prepaid Expensing
• Medicaid Reconciliation
• Act of 2005

65
SE Tax Planning

• Utilization of Proposed Regulations Limited
  Partners
• Limited Partner No SE
• General Partner Subject to SE
• Restructure ownership so General Partner(s) are
  also Limited Partners

66
SE Tax Planning

• Example
• XYZ Partnership Ownership 40/40/20
• X Y General Partners
• Z Limited Partner
• Taxable Income - 1M (After guaranteed payments
  to X Y)
• As Is

67
SE Tax Planning
After Restructuring
68
Use of Disregarded Entities

• Can be used to
• Separate and limit liability
• Potentially save employment taxes
• Reduce income tax compliance
• Maximize current use of losses
• Potentially save sales tax

69
Use of Disregarded Entities
Separate and Limit Liability As
Is Restructured

70
Use of Disregarded Entities
As Is Restructured

• Maximize Current Use of Losses

71
Cost Segregation

• What is a Cost Segregation Study (CSS)?
• It is an engineering analysis that identifies
  components of a building that can be depreciated
  over a life less than 39 years (i.e., 5, 7, or
  15)
• Major areas of cost allocations

• Electrical
• Plumbing
• Site work

• HVAC
• Millwork

72
Cost Segregation

• What are the Benefits of a CSS?
• Increased tax depreciation in earlier years,
  therefore less tax to pay
• All additional depreciation allowed in one tax
  year with no amended tax return to file
• Bonus depreciation (30-50) for allocations to
  non-real estate assets that were placed in
  service between 9/12/01 and 12/31/04

73
Cost Segregation

• What Buildings are Eligible?
• Newly constructed buildings
• Existing buildings purchased or constructed since
  1987
• Inherited buildings
• Existing buildings undergoing substantial
  renovation

74
Cost Segregation

• How Much Can Be Reclassified?
• Average
• Hotels 20-30
• Office buildings 12-30
• Apartments 20-35
• Medical office buildings 15-32
• Shopping plazas 20-38
• Manufacturing facilities 20-55
• Restaurants 15-40

75
Family Tax Planning

• Self-employed taxpayers with children under the
  age of 18
• Put kids on the payroll for legitimate,
  documented work
• Nominal income tax no FICA tax in wages up to
  4,000
• Kids have earned income to fund a Roth IRA
• Parent gets a tax deduction for wages paid,
  saving income FICA tax

76
Medicaid Reconciliation Act of 2005

• New look-back period pending insurance
• Penalty calculation starting date
• Annuity treatment
• Income changes
• Home equity
• Entrance fees

77
Retirement Planning

• Defined Contribution Plans
• Solo 401(k)
• 401(k)/Profit Sharing Plan
• SEP IRA
• Simple IRA
• Keogh
• Defined Benefit Plans
• IBM Change
• New Comparability
• 412(i)

78
Retirement Planning

• Roth 401(k)
• Effective for plan years beginning after 12/31/05
• Roth contributions made on an after-tax basis
• Annual contribution limits same as regular 401(k)
  - 15,000 or 20,000 if over age 50
• No income limitations for making contributions,
  unlike Roth IRAs
• Withdrawals are tax free if in the account for 5
  years and taken after age 59 ½
• Existing 401(k) plan document must be amended to
  allow for Roth deferrals
• Differences from Roth IRA

79
NYS Brownfield Tax Credits

• NYS Brownfield Tax Credits are

• Brownfield Redevelopment Credit
• (3 components)
• Remediated Brownfield Credit for Real Property
  Taxes
• Environmental Remediation Insurance Credit
• Opportunity Transferability of Certificate of
  Completion
• Warning Eligible property must be placed in
  service after receipt of Certificate of
  Completion

80
NYS Brownfield Tax Credits

• Brownfield Redevelopment Tax Credit is comprised
  of three components

• Site Preparation Costs
• Tangible Property Costs
• On-Site Groundwater Costs

81
NYS Brownfield Tax Credits

• Applicable Percentage Levels for the BRC
• 10 for personal income tax return filers
• 12 for all other filers
• Plus the following bonus amounts
• 2 for unrestricted, Track 1 Cleanup (land is now
  suitable for all uses)
• 8 if at least half the property is located in an
  En-Zone

82
Dividend Tax Rates

• Maximum rate 15 vs. 35 for high income
  individuals
• Maximum rate 5 for lower income individuals
  taxpayers (i.e., 59,400 for married filing
  jointly and 29,700 for single in 2005)
• 5 bracket is 0 in 2008
• Reduces effect of double taxation
• Only temporary reduction for 2003 to 2008

83
Dividend Tax Rates

• Opportunities
• C Corporation with little or no taxable income
• Family business whose owners are not all employed
  by the business
• Cheap way to extract money from certain types of
  foreign corporations
• S-Corps with C-Corp earnings can issue a Deemed
  Dividend, taxed at 15, and allow Shareholder to
  deduct losses at 35 tax rate.

84
Prepaid Expensing

• New Treasury Regulations
• Current expensing for certain costs of accrual
  basis taxpayers, for example
• Insurance
• License fees
• Property taxes
• Requires changing accounting method with IRS
• Automatic change for calendar year 2005

85

• Closing / Questions