Check out this presentation crafted by Kushner LaGraize, LLC, during New Orleans Entrepreneur Week 2016.

1. 1
Don’t Leave Money On the Table!
Top 8 Business Incentives for New Orleans
Entrepreneurs
Julie DiColo, CPA
Manager
Doug Finegan, CPA
Partner
Dean Martin Jr., CPA
Senior Manager

2. Don’t Leave Money On the Table!
Top 8 Business Incentives for New
Orleans Entrepreneurs
2

3. Top 8 Business Incentives
• Domestic Production Activities
Deduction
• Historic Rehabilitation Tax
Credit
• Louisiana Digital Media
Incentive
• Research & Development Tax
Credit
• Enterprise Zone /Quality Jobs
Programs
• IRC Sec. 83(b) Election
• LA Capital Gains Exclusion
• Small Business Stock Exclusion
3

4. Format
• General Overview
• How does this look in the real world?
• Illustration
• Rules, Regulations, and Stipulations
4

5. #1 Domestic Production
Activities Deduction
“Deduct 9% of Your Profits Without Spending a Dime”
5

6. Domestic Production Activities Deduction: NOLA
In Bloom
6
Flora is the owner of NOLA In
Bloom, an expanding flower farm.
She grows and sells fresh cut flower
bouquets and arrangements.
She was able to grow her business in
2015 to 480,000 in revenues with
net income of 300,000.

7. Domestic Production Activities Deduction: NOLA
In Bloom
7
Tax Liability w/o DPAD Tax Liability with DPAD
Taxable Income 300,000 300,000
Less: DPAD 0 (27,000)
300,000 273,000
Federal Income Tax 82,606 73,696
State Income Tax 11,794 10,708
Total Tax 94,400 84,404

8. Domestic Production Activities Deduction
• Incentive is available to taxpayers that do the
following in the United States:
▫ Manufacture goods (includes software & food
products)
▫ Grow or extract property
▫ Produce sound recordings and/or films
▫ Construct real property (includes subcontractors)
▫ Perform related engineering/architectural services
8

9. 9

10. #2 Historic Rehabilitation
Credit
“Have the government help pay for your
renovation/redevelopment”
10

11. Historic Rehab Credits – Strategic Design
Consortium
11
Jamie owns Strategic Design Consortium, a brand
consulting & design firm.
He, along with additional investors, forms a real estate
partnership to purchase & rehabilitate a building in Mid
City.
Jamie will rent out the bottom floor of the building for his
offices and additional rental revenue will be generated
from apartments on the top floor.

12. Historic Rehab Credits – Strategic Design
Consortium
12
Investment Qualified Costs
Acquisition Costs - Structure 140,000
Acquisition Costs - Land 110,000
Parking Lot/Landscaping 12,000
Construction Costs 231,000 231,000
Furniture & Equipment 20,000
Architect Fees 12,000 12,000
Total 525,000 243,000
X 45%
109,350

13. Rehabilitation Tax Credits
• Combined federal and state incentive is up to
45% of the cost of renovation
▫ Renovation costs only – does not include original
acquisition costs, furniture, expansion, or site work
• Structure must be located in a historic district
▫ Good News – Historic Districts cover practically all of
New Orleans!
13

14. • Federal Rehabilitation Tax Credit – 20%
▫ Nontransferable – Must be used to offset tax
liability on building owner’s tax return
▫ Can be carried back one year and forward twenty
• Louisiana Rehabilitation Tax Credit – 25%
▫ Transferable – Can be sold at a discount (typically
around 85% on the dollar)
14
Rehabilitation Tax Credits

15. #3 Louisiana Digital Media
Incentive
“Get paid for developing your app”
15

16. Digital Media Incentive: Crescent Media
Solutions, Inc.
16
Crescent Media Solutions, Inc. is developing Big Easy Parade
Exchange, a cloud based application that allows users to buy
and sell goods and services on parade routes.
The company rents office space for its three permanent
employees and also hires a consultant to help with development
of the mobile application.

17. 17
Payroll Expenses Title Gross Pay Qualified Expense
Marley Middleton Product Development 130,000 80% 104,000
Alexis Prejean QA Analyst 43,000 39% 16,770
Marcus Robinson Product Support 22,000 24% 5,280
195,000 126,050
Non-Payroll Expenditures Description Total Qualified Expense
IDC Realty Group Office Rent 36,000 55% 19,800
Apple Store Equipment 11,300 100% 11,300
Office Depot Supplies 1,500 100% 1,500
Jorge Ramirez Contractor 35,000 100% 35,000
83,800 67,600
Credit Calculation
Payroll Credit 126,050 X 35% = 44,118
Other Expenditures Credit 67,600 X 25% = 16,900
Total Credit 61,018

18. Digital Media Incentive e
▫ Refundable tax credit of 25-35% of investment in
qualified projects.
 Applicants may also choose cash rebate of 85% of
credit amount
18

19. Digital Media Incentive
• Qualifying projects are interactive software products
built for commercial export.
• Includes video games, training software, applications,
web & cloud based platforms, etc.
• Does not include static websites, largely static retail
websites, or any projects that are for internal use only
19

20. • What costs qualify for the credit?
▫ Labor, equipment, and supplies directly allocable to production
▫ Licenses/permits for development
▫ Allocable rent for production site
Credit is 35% on payroll to Louisiana residents and 25% on all
other qualified expenses
20
Digital Media Incentive

21. #4 Research & Development
Tax Credit
21

22. R&D Tax Credit: A&C Building Solutions
22
Amy Architect and Carl Contractor form A&C Building
Solutions, a company focused on designing and building
functional workspaces & corporate campuses.

23. A&C Building Solutions: Federal R&D
Credit Calculation
23
2009 2010 2011 2012 2013 2014 2015
Wages 75,000 85,000 125,000 225,000 325,000 325,000 325,000
Supplies 500 750 2,000 3,800 4,000 4,000 4,000
Contract
Labor
0 0 3,500 5,000 3,000 3,000 3,000
QRE 75,500 85,750 130,500 233,800 332,000 332,000 332,000
Less: Base (48,625) (75,008) (116,050) (149,633)
185,175 256,992 215,950 182,367
X 14% X 14% X 14% X 14%
Federal R&D Credits: 25,925 35,979 30,233 25,531

24. Research and Development Tax Credits
• Qualifying taxpayers are typically involved in:
 Manufacturing
 Software Development
 Engineering
 Architecture
 Agriculture
 Food Processing/Manufacturing
 Biotechnology
 Construction
24

25. Research and Development Tax Credits
Qualifying Research Expenditures
#1) Improve function, performance, reliability, or
quality
#2) Rely on principles of science or engineering
#3) Eliminate uncertainty
#4) Element of a process of experimentation
▫ Typically wages, contract labor, and supplies
25

26. Research and Development Tax Credits
• Federal credit is 14-20% of qualified
expenditures over base amount
▫ Start-ups may use credit against payroll taxes
• State credit is 8-40% of qualified
expenditures
▫ Based on number of employees
26

27. #5 Enterprise Zone & Quality
Jobs
“Have the state reimburse you for assembling your team”
27

28. Enterprise Zone: Henry’s Auto Repair Shop
28
In 2016, Henry
decides to construct
his own Auto Repair
Shop and hire a few
full-time assistants.

29. Enterprise Zone: Henry’s Auto Repair Shop
29
Year Event Credit Total Credit
2016
Facility Buildout $300,000
4% Sales Tax = $12,000
New Full-Time Hires:
Henry
Henry’s Assistant #1
$12,000
$2,500
$2,500
$17,000
2017
New Full-Time Hires:
Henry’s Assistant #2
Henry’s Office Manager
Henry’s Assistant #3
$2,500
$2,500
$2,500
$7,500

30. Enterprise Zone: Henry’s Auto Repair Shop
30
Year Event Credit Total Credit
2018
Assistant #1 Leaves
Hires Assistant #4
---
--- $0
2019 Hires Assistant #5 $2,500 $2,500
TOTAL CREDITS $27,000

31. • Tax credits of $2,500 per new job created
• 1.5% to 4% reimbursement of your total investment
▫ Available only to certain industries
▫ Limits on who you can hire to qualify – 50% new hires from:
 Residency in Enterprise Zone
 Public Assistance
 Lacking Basic Skills
 Unemployable by Traditional Standards
▫ Timing of application is essential: file “Advance Notification” ASAP
31
Enterprise Zone Program

32. • 6% cash rebate on 80% of gross payroll for new direct
jobs
• 1.5% to 4% reimbursement of your total investment
▫ 10 year period
▫ Need 5 new jobs by end of 3rd fiscal year
▫ Must be high-paying jobs with benefits
▫ Timing of application is essential: file “Advance Notification”
ASAP
32
Quality Jobs Program

33. • What is a “Quality Job” ?
▫ Full-time (30+ hr/week)
▫ Health Benefits
▫ Minimum wages of $14.50/hr
▫ Must hit total payroll threshold by end of third fiscal year:
 <50 employees, total payroll at least $250,000
 >50 employees, total payroll at least $500,000
33
Quality Jobs Program

34. • 3 Eligibility Scenarios:
1. Industry = Bioscience, Manufacturing, Software,
Environmental Technology, Food Technology, Advanced
Materials or Oil & Gas Field Service
2. Business located in economically distressed region
 Lowest 25% Per Capita Parishes
 A census tract block group is below the state median per capita
income, based upon the latest federal decennial census.
34
Quality Jobs Program

35. • 3 Eligibility Scenarios (con’t):
3. Must have at least 50% of annual sales out-of-state and/or
to in-state customers or buyers if the product or service is
resold by the purchaser to an out-of-state customer or buyer
or to the federal government
35
Quality Jobs Program

36. • Retail employers
• State and local government enterprises
• Real estate agents, operators and lessors
• Automotive rental and leasing
• Local solid waste disposal, local sewage systems and local water systems
businesses
• Nonprofit organizations, with some exceptions
• Employers engaged in the gaming industry
• Attorneys
36
Quality Jobs Program
Many industries do NOT qualify:

37. #6 IRC Sec. 83(b) Election
“So you want to get paid in stock – what you need to know”
37

38. 83(b) Election: Billy’s Bait, Inc.
38
Jane Jones,
top bait
salesperson of
2015
100 shares of
Billy’s Bait, Inc.
Vests in 3 years
Awarded 1/1/16

39. 83(b) Election: Billy’s Bait, Inc.
39
Date FMV of Stock
January 1, 2016 (date awarded
to Jane)
$5 per share
January 1, 2019 (date stock
vests)
$40 per share
Jane decides to cash out
on her shares on June
30, 2019 at FMV $50
per share.
In 2018, Billy
Bait, Inc. is
hugely
successful and
goes public!

40. 83(b) Election: Billy’s Bait, Inc.
40
Jane DOES Elect 83(b) Jane DOES NOT Elect 83(b)
2016 Recognizes $500 of compensation (100
shares at $5/share)
Does not recognize any compensation
2019 Does not recognize any compensation Recognizes $4,000 of compensation (100
shares at $40/share)
On June 30, 2019, Jane sells her shares for $5,000 (100 x $50/share)
Recognizes $4,500 of capital gain at
favorable capital gain rates
Recognizes $500 of capital gain at
unfavorable short-term capital gain rates
Overall tax effect
$500 – unfavorable rates
$4,500 – favorable rates
$4,500 – unfavorable rates

41. • Election to recognize the current fair market value as
compensation upon receipt
• Good way to compensate employees without cash in
the early stages
• Advantageous if you believe stock will appreciate
• Creates a noncash deduction for the business
• Must be done within the first 30 days of receipt of stock
41
IRC 83(b) Election

42. #7 Louisiana Capital Gains
Exclusion
“Advantage of Operating a Business in Louisiana: How to pay zero
state tax on the sale of your business”
42

43. • Louisiana taxpayers are allowed a deduction for
the net capital gains resulting from the sale
or exchange of their business or interest in a
business
• Created as a result of businesses relocating to
Texas to avoid income tax
43
LA Capital Gain Exclusion

44. #8 Small Business Stock Gain
Exclusion
"End Game: How to pay zero federal tax on the sale of your business"
44

45. Small Business Stock Gain Exclusion
▫ 100% Exclusion is available on the gain on
disposition of Qualified Small Business Stock
acquired after September 28, 2010.
▫ Temporary provision made permanent with
with passage of the PATH Act of 2015.
45

46. • What is Qualified Small Business Stock?
▫ Must be original issuance C-Corporation
stock of an active business
▫ Held for at least 5 years
▫ Corporation must have gross assets of less
than 50 million
46
Small Business Stock Gain Exclusion

47. Conclusion
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