Spectrum Sports

Buzz Boyz: A Look at the Tax Law

February 13, 2018 No Comments

By Scott Borowsky and Frank Seninsky

January 2018 has passed and the economic outlook in the U.S. is still very positive. The stock market is at record highs; 401k’s are up; small, medium, and large sized companies are seeing and anticipating positive growth.  In our entertainment sector, we are seeing more advertising, more renovations/expansions, and more new projects in development. The FEC market is growing in shopping malls, whose owners now see entertainment as a big factor in their future success in attracting tenants and attendance.

Even the National Retail Federation (largest association for retail) is optimistic for 2018. For the past eight years the United States has seen a 1.75 percent growth in GDP (gross domestic product).  We are now at 3.5 percent growth over the past year, and this is before the passage of the Tax Cut & Jobs Act.  This month, February is when we will see changes in W-2s when more than 100 million people will notice that ‘less’ money is being taken out of their pay checks. The auto industry is projecting that 200,000 new cars will be sold in the U.S. for 2018. Digging down, the Buzz Boyz discovered that more big cars (higher priced) are included in this number as this is where the profit is for the auto makers.  They make very little money selling the smaller cars.  Note that this is the same way that our industry game manufacturers are making larger footprint (higher priced) games for the FEC market.  There is much we can learn from following other industries!

Trend – Big versus Mini.  In recent years there has been a big push for FECs to get bigger and bigger. The Buzz Boyz would like to point out that big size equals big overhead. When this trend occurs, then you always get an opposite reaction – now we are starting to see the mini facility gaining popularity. 

Small mini-sizes of 3,500-4,000 square feet are being tested (we know of three that opened this month) and are using new virtual reality technology as the attraction. The key here is that the ‘experience’ can easily be changed to encourage repeat visitation. We believe that this is where VR is heading – the entertainment becomes the software. The investment is lower, the difference between 4,000 square feet and 40,000 square feet.  Note that in the old days, 4,000 square feet was considered a typical FEC.  

The good news is that our industry benefits whichever way new technology goes.  It always happens that way, Scott calls it the ‘Yin-Yang Things.’

Trade Show Trend—After covering/attending more than two dozen trade shows in 2017, we have noticed that the first two days are usually well attended and then attendance falls off dramatically.  In today’s fast-paced world, no one stays longer than they have to. In the past, attendees liked to hang out and network (party) and this is no longer the case. IAAPA may be the only exception. 

The  Buzz Boyz Highly Recommend that You Attend Foundations University

Foundations Entertainment University 2.0 Will Be Pre-Amusement Expo 2018 in Las Vegas, Nev., February 25-26 (Sunday-Monday) 

2018 will be the 16th consecutive year for Foundations Entertainment University, the industry’s number-one ranked educational seminar program.  With more than 1,350 graduates and more than 250 FECs that got their start with Foundations, the NEW Deluxe Foundations University 2.0 is for newbies, FEC industry veterans, and service providers who want to learn how to be a part of the number three growth industry in the United States.

Sunday/Monday – Two Days/Two Evenings.  Foundations Attendees Receive FREE Amusement Expo Pass to Tuesday Seminars & Trade Show ($175 Value) and also includes Laser Tag Convention Trade Show.  Attendees can also attend the Laser Tag Convention Tuesday Seminars for only $20 (a $225 Value).

What’s New in 2.0
• More Topics
• More Networking
• More “What Works & What Doesn’t”
• More Site Visits
• Guest Speaker
• Social Media Marketing
• P&L’s for small, medium & large centers
• Webinars
• Interactive website
•And so much more!

THE FOUNDATIONS CLASS IS FILLING UP.  REGISTER NOW www.foundationsuniversity.com or contact Frank Seninsky at fseninskyaem@gmail.com or Cell 732-616-5345.  

Tax Cut and Jobs Act of 2017 

Some Ways the Tax Cut and Jobs Act of 2017 (TCJA) will Help Our Industry of Small and Medium-Sized Businesses 

Pay Attention to the New Rules on Pass-through Entities.

Pass-through entities – is defined now as any business that is a:

1. A corporation (Inc. or P.A.) that qualifies as a ‘small business’ and has elected to be taxed as a Subchapter S corporation.

2. A limited liability company (LLC) that must 

   • Have two or more members and has elected to be taxed as a Subchapter S corporation or a partnership.

   • Has one member and has elected to be taxed as a Subchapter S corporation.

3. Some trusts and estates fall under the definition of a pass-through entity but under TCJA may not qualify for the new deductions.

It’s all about Qualified Business Income (QBI) – You may be able to deduct 20 percent of domestic QBI that reduces the individual income tax rate of this income by 20 percent. [QBI creates a difference between wage earners (pay higher income tax rate) and the self-employed (owners get to deduct QBI and pay lower income tax rate]. QBI is fully defined in the new Section 199A of the Internal Revenue Code.

Strategy Examples

Closely-held business owners need to research ways to maximize QBI.  One way for a business that owns equipment that is used to provide services is to create a separate company to own the equipment and then lease that equipment to ‘perform the actual service’ to the main company.

Find out if your business has a wage limitation that limits your QBI deduction. There are many ways to restructure to maximize wages.  For example, key people can be offered stock to become a part of the ownership.  Then the business can reduce their payments to these key people (who now have equity in the company) with these key people receiving the same or more ‘after tax’ dollars, but the business will show additional profits.

Services Business – Amusement Game Vendors and Family Entertainment Centers (good argument that these are service business) – But does not apply to consulting, lawyers, accountants, financial services, artistic performers, except for taxable income not exceeding $315,000 (married filing jointly) or $157,500 (individuals).

There is a 20 percent deduction that is phased out for taxable income between $315,000 and $450,000 (married filing jointly) and between $157,500 and $207,500 (individuals).

The deductible amount is limited to 50 percent of the W-2 Wages paid to the entity’s employees but the wage limit only applies if an individual’s income is over $315,000 (married filing jointly) and $157,500 (individuals).

*Information courtesy of P. Christoper Wegner of Wegner Law PLLC. The examples and strategies written in this article are not intended as legal or accounting advice and come with no guarantee of correctness.  It is not a substitute for legal or tax advice. 

Back

Sorry, the comment form is closed at this time.

Testimonials

    • “We get your magazine on a regular basis and look at them often for inspiration, especially the …Buyer’s Guide and IAAPA show editions (yes, I keep them)!”
      – Traci Walker, The Canyons Zipline and Canopy Tours, Ocala, Fla.

    • “The TAP coverage and layout for F2 is FANTASTIC. Thanks for the banner page heading. Love the placement of the Live Oak ad…could not be better!”
      – Amigo Ben Jones, F2FEC

    • “I received the magazines. Hey, beautiful job on the article. Many thanks, I’m very happy.”
      – Sebastian Mochkovsky, Sacoa

Spectrum
Extreme Engineering
Funovation
Rebound Unlimted, Inc.
Betson