Friday, December 10, 2010
Last weekend I attended a Holiday party a client graciously invites me to each year. We've all been to numerous Holiday parties over the years and they are generally good fun and we enjoy good company! This particular party last week was very different in one way...this company's marketing group put together a film production chronicling a number of subplots and themes (one such example is the "rumor" that tunnels exist below their office building which they were accessing by going under their desks...looked to be true!). The main message of the film was congratulatory in nature. This company, and its President, have been in business for 30 years.
The performance given captivated the entire audience for what seemed approximately 30 minutes, give or take, in duration. It wasn't as much the message that really grabbed my attention (no offense, 30 years in business is quite an accomplishment). No, it wasn't as much the message...it was the messengers that really made quite an impression on me. Virtually all the employees of the company were featured in this film (yes, it was good enough of a production to be called a film) and they were HAVING FUN! One of the ladies was even singing the "I want to be a billionaire so f*&^%!g bad" song at one point and then the original song played in the background...good times!
This company has figured it out, something special that can't easily be quantified or bottled. It would be great if we could all have organizations where the morale was at the high levels I saw depicted throughout this film, especially in these tougher times! Although not easily quantified, the business results are generally very directly correlated to the attitudes and morale of the team producing those results.
Earlier this month, I was connected with a contractor who was using a CPA who didn't have much construction financial/tax background. In reviewing the tax returns it was clear that the predecessor CPA hadn't taken the Domestic Production Activities Deduction ("DPAD") which many contractors qualify for. Generally, this deduction is calculated as 9% (for tax year 2010 and later years, it used to be less in previous years) of taxable income and can be significant. In the simplest terms, the deduction is permitted for taxpayers engaging in a number of activities including the construction of new, or substantially remodeled, real property. As always, I advise any contractor to consult with their tax advisor regarding their particular circumstances.
The contractor I refer to above will have nearly $500,000 in taxable income for 2010 and engages in the construction of qualifying real property. The basic, rounded math translates into a tax savings for this contractor of approximately $18,000. I arrive at this number by taking $500,000 and multiplying it by the 9% rate permitted by Section 199 ("DPAD") and arriving at $45,000. This $45,000 is a deduction (as opposed to a dollar for dollar credit against the company's tax bill) and as such will result in an approximate 40% savings (effective tax rate). The $45,000 result multiplied by the 40% effective rate is how I arrived at the $18,000...no small change!
This DPAD deduction had not been taken previously for this particular contractor and most likely would have been missed again for 2010. Please be sure you are considering this deduction for your business. If you are a surety professional, banker, attorney or other services provider be sure to make the contractors you are associated with aware as well.