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Eo Presentation - CA Enterprise Tax Zones Benefits
 

Eo Presentation - CA Enterprise Tax Zones Benefits

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Ideas on how to save money with CA state govt funds for your company. As of 2007, the SF Enterprise zone inlcudes the ENTIRE downtown business district

Ideas on how to save money with CA state govt funds for your company. As of 2007, the SF Enterprise zone inlcudes the ENTIRE downtown business district

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    Eo Presentation - CA Enterprise Tax Zones Benefits Eo Presentation - CA Enterprise Tax Zones Benefits Presentation Transcript

    • Enterprise Zone Tax Benefits Create organic working capital Maximize tax savings Increase cash flow
    • Agenda 1. What is an Enterprise Zone? 2. Bay Area EZ Locations 3. Available Enterprise Zone Benefits 4. Hiring Credit 5. Sales or Use Tax Credit 6. Net Interest Deduction 7. Enterprise Zone Credit Nuances 8. Questions? © 2009, Tax Incentives Group, LLC 1
    • What is an Enterprise Zone? Specially designated area within California Regulated at the State level and administered at both State and Local levels Created to encourage job growth, new development, and investment Enterprise Zone businesses qualify for special tax incentives and credits Credits are available against California income/franchise tax © 2009, Tax Incentives Group, LLC 2
    • Bay Area EZ Locations San Francisco Oakland Pittsburg (pending) Richmond San Jose Watsonville © 2009, Tax Incentives Group, LLC 3
    • Available Benefits Hiring Credit Sales or Use Tax Credit Business expense deduction Net interest deduction for lenders Special Net Operating Loss treatment © 2009, Tax Incentives Group, LLC 4
    • Hiring Credit Businesses within an Enterprise Zone can claim the hiring credit for an employee who: Was hired after the Enterprise Zone received its designation; Spends at least 90% of work time on activities related to business within the Enterprise Zone; Performs at least 50% of their work within the Enterprise Zone; and Is determined to be a “Qualified Employee” © 2009, Tax Incentives Group, LLC 5
    • Qualified Employees Qualified employees are those who are: 1. A resident of a targeted employments area (TEA) 2. Recently separated or Vietnam-era veteran 3. Dislocated workers 4. Economically disadvantaged 5. Receiving or eligible for SSI, AFDC/TANF, food stamps or General Assistance 6. Enrolled in or eligible for CalWORKS, WIA or WOTC programs 7. Disabled individuals or disabled veterans 8. Ex-offenders 9. Native American, Native Samoan, Native Hawaiian © 2009, Tax Incentives Group, LLC 6
    • Hiring Credit Workflow 1. Develop IDR and work plan 2. Gather employee information 3. Perform TEA analysis 4. Schedule and conduct employee interviews 5. Gather documentation from employees 6. Prepare voucher applications & supporting documentation 7. Submit voucher applications 8. Collaborate with government authorities 9. Prepare schedule with qualified employees 10. Develop IDR for payroll 11. Gather payroll data 12. Perform computations for the Hiring Credit 13. Develop Memo outlining benefits 14. Establish internal documentation © 2009, Tax Incentives Group, LLC 7
    • Hiring Credit – Case Study Assume Company X has 10 employees working within the Enterprise Zone, and only 5 of these employees qualify. Each employee makes $12/hour and works 2080 hours per year = $24,960 for base wage purposes The following hiring credits would be available: Year 1 $ 62,400 Year 2 $ 49,920 Year 3 $ 37,440 Year 4 $ 24,960 Year 5 $ 12,480 Total Credit $187,200 © 2009, Tax Incentives Group, LLC 8
    • Hiring Credit – Reality Check Company X CALIFORNIA ENTERPRISE ZONE HIRING CREDIT FYE 12/31/07 (1) (2) FY 2007 FY 2007 1st 12 mos. 2nd 12 mos. 3rd 12 mos. 4th 12 mos. 5th 12 mos. Hire Min. Allowed Actual Lesser of Total Qualified Qualified Qualified Qualified Qualified Qualified Employee Date Wage 150% Wage Rate (1) or (2) Hours Wages Wages Wages Wages Wages Wages Employye A 10/17/2004 $ 7.50 $ 11.25 $ 10.25 $ 10.25 466 $ 4,777 - - 3,795 982 - Employee B 10/13/2005 $ 7.50 $ 11.25 $ 11.54 $ 11.25 1,700 $ 19,125 - 14,986 4,139 - - Employee C 10/3/2006 $ 7.50 $ 11.25 $ 9.25 $ 9.25 675 $ 6,244 4,722 1,522 - - - Employee D 1/1/2007 $ 7.50 $ 11.25 $ 17.31 $ 11.25 2,080 $ 23,400 23,400 - - - - Employee E 4/10/2007 $ 7.50 $ 11.25 $ 21.63 $ 11.25 1,283 $ 14,434 14,434 - - - - Total Qualified Wages $ 67,980 $ 42,556 $ 16,508 $ 7,934 $ 982 $ - Credit Percentage 50% 40% 30% 20% 10% Total $ 21,278 $ 6,603 $ 2,380 $ 196 $ - TOTAL HIRING CREDITS EARNED 12/31/2007 $ 30,457 © 2009, Tax Incentives Group, LLC 9
    • Sales or Use Tax Credit An Enterprise Zone business may claim a credit equal to the sales or use tax paid/incurred for purchase of “qualified” property Qualified property includes the purchase of machinery or machinery parts used in the following: Fabricating, processing, assembling, and manufacturing; Production of renewable energy resources; Air or water pollution control mechanisms; or Data processing and communications equipment © 2009, Tax Incentives Group, LLC 10
    • Qualified Property What is considered “qualified property”? How is fabricating and processing defined? How is data processing defined? © 2009, Tax Incentives Group, LLC 11
    • Sales or Use Tax Credit Example Assume Company X purchases $100,000 worth of qualified property. The sales tax rate is 9.50%. The Sales or Use Tax credit would be calculated as follows: Amount of qualifying purchases $100,000 Amount of state & local sales tax paid $ 9,500 Total Credit $ 9,500 © 2009, Tax Incentives Group, LLC 12
    • Net Interest Deduction Lenders can deduct from California income the amount of “net interest” received on loans made to a trade or business located within a California Enterprise Zone Net interest is defined as the full amount of interest, less any direct expenses incurred in making the loan The cost of funds may be calculated as a percentage, based on the average cost of deposits divided by the average yield on loans © 2009, Tax Incentives Group, LLC 13
    • Net Interest Deduction In order to qualify, the loans must meet certain requirements The loans must be made to a trade or business located solely within the Enterprise Zone; The money loaned must be used strictly for the business activities within the Enterprise Zone; The loans must be made after the designation of the Enterprise Zone; and The lender must have no equity or other ownership interest in the trade or business © 2009, Tax Incentives Group, LLC 14
    • Enterprise Zone Credit Nuances Refunds available over 4-year look-back period as well as prospective Limitation based on EZ income Apportionment formula used © 2009, Tax Incentives Group, LLC 15
    • Enterprise Zone Credit Nuances Unlimited credit carryover Company X generates $50,000 of credit in Year 1 Year 1 tax liability equals $20,000 $30,000 available credit carryover in Year 2 © 2009, Tax Incentives Group, LLC 16
    • Enterprise Zone Credit Nuances Credits flow down to shareholders in pass-through entities Pass-through entities LLC LLP LP General Partnership Sole Proprietorship S-Corporation © 2009, Tax Incentives Group, LLC 17
    • Questions? © 2009, Tax Incentives Group, LLC 18
    • Contact Information Contact: Scott S. Nelson, Managing Partner Tax Incentives Group, LLC (415) 565-7171, ext.1 scott@taxincentivesgroup.com www.taxincentivesgroup.com © 2009, Tax Incentives Group, LLC 19