© 2010 PIASCIK & ASSOCIATES, P.C.

Tax Strategies EXPORT INCENTIVE – IC-DISC 10% of Qualifying Export Income Tax Free RESEARCH INCENTIVE – R&D Credit Tax Credit Equal to 10% of Qualifying Labor Costs MANUFACTURING INCENTIVE – Producers’ Deduction Tax Deduction Equal to 9% of Qualifying Production Income

© 2010 PIASCIK & ASSOCIATES, P.C. Export Tax Incentive…Only One Remains

© 2010 PIASCIK & ASSOCIATES, P.C. Introduction to the IC-DISC IC-DISC must be a U.S. corporation with only a single class of stock. IC-DISC stock must have minimum par value of $2,500 at all times. The U.S. corporation must elect to be an IC-DISC by filing special forms with the IRS within a certain timeframe. Must maintain separate books and records and a bank account. Must obtain an F.E.I.N and file an annual return. Two types of IC-DISCs – Commission (most common) and buy-sell.

© 2010 PIASCIK & ASSOCIATES, P.C. Introduction to the IC-DISC The IC-DISC is not subject to U.S. corporate income tax, thus it does not pay tax on its income (usually in the form of a commission) that it receives from the related U.S. exporter/manufacturer who also claims a tax deductible commission expense. When the IC-DISC pays a dividend to its owners they will pay tax on that income at a 15% tax rate. The owners are in effect converting a portion of their business income from exports, which is taxed at a 35% tax rate to qualified dividend income taxed to an individual at a 15% tax rate.

© 2010 PIASCIK & ASSOCIATES, P.C. Determining the IC-DISC Benefit Sample Calculation Qualified Export Receipts$5,000,000 Less: Cost of Goods Sold(3,000,000) Gross Margin 2,000,000 Less: Selling, General and Adm. Expenses(1,000,000) Net Export Profits 1,000,000 IC-DISC Commission (Greater of 50% of Export x.50 Profits or 4% of Export Receipts) 500,000 U.S. Tax Benefit (Difference between Exporter’s x.20 Tax Rate of 35% and 15% $100,000

© 2010 PIASCIK & ASSOCIATES, P.C. Ideal Candidates Closely held exporter U.S. produced goods (software may qualify) and or certain services Annual export sales of at least $1 Million; AND/OR Net taxable income derived from export sales of at least $200,000.

© 2010 PIASCIK & ASSOCIATES, P.C. The R&D Tax Credit....Claim What You Deserve!

© 2010 PIASCIK & ASSOCIATES, P.C. Federal R&D Credit Qualifying Expenditures Wages, Supplies, Contract Research (65%) How the Rules Changed in 2001 for the Better Pre 2001 – New to the WORLD Post 2001 – New to YOU Gets Even Better in 2010 – Small Bus. Jobs Act Credit Can be Claimed for Current Year and Prior Three years (Amended Returns)

© 2010 PIASCIK & ASSOCIATES, P.C. Virginia’s New R&D Credit Signed into Law on February 25, 2011 by Gov. McDonnell (HB 1447) Effective Refundable Tax Credit (Do not have to owe tax to obtain the cash!!) Virginia Qualified R&E expenditures (Performed in VA) Tax credit amounts to: 15% of the first $167,000 in Virginia qualified R&D expenses, or 20% of the first $175,000 of Virginia qualified R&D expenses if the research was conducted in conjunction with a Virginia public college and university

© 2010 PIASCIK & ASSOCIATES, P.C. Issues to Consider Can you Utilize the R&D Credit Now, Later, or Never? (Your Tax Position Matters) Deferred Asset Could Be recognized on your Financial Statements and your Treasury Dept Could Become Your Best Friend Tier I Concern for the IRS All Amended Returns are Subject to IRS Audit Need for R&D Study by a Reputable Firm With Expertise, Proven Record, and Audit Defence Services Timing/Planning of Project with other Financial Projects.

© 2010 PIASCIK & ASSOCIATES, P.C. Producers’ Deduction....Made in the USA!

© 2010 PIASCIK & ASSOCIATES, P.C. Producers’ Deduction American Jobs Creation Act of 2004 Enacted on October 22, 2004 Created Domestic Producers’ Deduction Repealed/Phase-out of the ETI Regime Taxpayers may deduct a specified percentage of their qualified production activities income Below-the-line deduction for individuals Phased in starting with tax years beginning in 2005

© 2010 PIASCIK & ASSOCIATES, P.C. “Qualified Production Activities Income” Defined “Qualified production activities income” includes a taxpayer’s domestic production gross receipts reduced by the following: Cost of goods sold allocable to such receipts Other deductions, expenses, and losses directly allocable to such receipts A ratable portion of other deductions, expenses, and losses not directly allocable to such receipts or another class of income

© 2010 PIASCIK & ASSOCIATES, P.C. “Domestic Production Gross Receipts” Defined Domestic production gross receipts generally are gross receipts derived from any disposition of qualifying production property manufactured, produced, grown, or extracted in significant part within the U.S. Includes gross receipts derived from construction performed in U.S. and engineering and architectural services performed in U.S. for U.S. construction

© 2010 PIASCIK & ASSOCIATES, P.C. “Qualifying Production Property” Defined Qualifying production property includes: Tangible personal property Computer software Sound recordings

© 2010 PIASCIK & ASSOCIATES, P.C. Example of a “Basic” Computation Provides for a deduction equal to a percentage of the lesser of: A percentage of Qualified Production Activity Income (QPAI) or Taxable Income Percentage deduction for taxable years beginning in: 2005 – % 2007 – % 2010 and after 9% Example For a taxpayer with $1 million in taxable income and QPAI that derives all of its revenue from qualified production activities performed within the U.S., that would otherwise have annual federal tax of $340,000, the benefit is as follows (assuming no limitation otherwise applies):

© 2010 PIASCIK & ASSOCIATES, P.C. Example of a “Basic” Computation (continued)

© 2010 PIASCIK & ASSOCIATES, P.C. Tax Strategies Summary EXPORT INCENTIVE – IC-DISC 10% of Qualifying Export Income Tax Free RESEARCH INCENTIVE – R&D Credit Tax Credit Equal to 10% of Qualifying Labor Costs MANUFACTURING INCENTIVE – Producers’ Deduction Tax Deduction Equal to 9% of Qualifying Production Income

© 2010 PIASCIK & ASSOCIATES, P.C.