About the Host

Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.

About the Guest

James Markham is the EY Global Tax Middle Market Leader, after serving as the EY Global Tax Leader — Strategic Growth Markets for the past few years. He has 33 years of experience and concentrates on tax, accounting for income taxes, acquisitions, joint ventures and foreign expansion planning. He helps companies with tax minimization strategies, especially in mergers and acquisitions and international expansion.

James has a master’s degree in Tax and an undergraduate degree in Accounting from Brigham Young University. He is a member of the American Institute of CPAs.

If you listen, you will learn:

  • What does tax reform mean for U.S. business owners?
  • Where to go to get accurate information about the 2018 tax reform.
  • Why you need to check, check, and triple check your analysis to make the right decisions for your business.
  • What the tax reform means for private equity firms.
  • The changes that will change “the game” in the long run.
  • Expect a boom in international business interest.
  • Why this is a good time to review your current business deals and revise them accordingly.
  • Why high tax areas will suffer from this new tax reform.
  • New financial caps that will take effect with the new reform.
  • Make sure you are ready!
  • The 3 highlights James has for the audience.

Full Transcript

Announcer: 00:06 Welcome to Life After Business, the podcast where your host, Ryan Tansom, brings you all the information you need to exit your company and explore what life can be like on the other side.

Ryan Tansom: 00:17 Welcome back to the Life After Business podcast, this is episode eighty. So now that we're one month into the New Year of 2018 and everybody is still confused as all get up on the tax reform, I thought it was more than fitting to have James Markham on the podcast today who was the head of global mid-market tax for EY, also known as Ernst and Young. James has been at EY for three and a half decades and we dive headfirst into the tax reform and what it means to you as a business owner. We talk about how it impacts operations on an annual basis, depending on the corporate structure, the pass-through tax brackets, and we also make sure that we dove into, if you're going to be selling your company in the next three to five years, what are the different things that you need to be thinking about in the long-term to make sure that you're preparing yourself to net as much as you possibly can, but also making your business and entity structure as appealing as possible to a buyer, especially as the market gets more competitive for the sellers. Stay tuned in because this episode with James demystifies a lot of the different tax questions and concerns and mysteries that people have been talking about, and we'll give you a nice bulleted list of things that you should be thinking about and asking questions to people about. So without further ado, here's my episode with James.

Announcer: 01:34 This episode of Life After Business is brought to you by Solidity Financial's growth and exit planning. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe to the right buyer at the price you want.

Ryan Tansom: 01:34 James, how are you doing today?

James Markham: 02:02 Great. It's a great time to be in the tax world because all of a sudden we're the most important people at a party, at the top or anyway, because everybody's talking taxes.

Ryan Tansom: 02:11 It's like a weatherman that finally gets a storm coming in and he's all over the news. Right?

James Markham: 02:16 Exactly. And I don't know, for me it's like the boy that cried wolf, like we've been saying it's coming, it's coming, it's coming. And the scary part of this is we're in earnings season right now and it's December 31st. They basically signed the tax law like on the 22nd, and if you're a publicly traded company, you have to report the impact of- on your earnings in this quarter. And so a number of companies, uh, from, from the firm's standpoint, from an auditing standpoint, they basically said it's a million extra hours to audit those numbers. [Ryan interjects: Oh my gosh.] The interesting thing is the FCC came out and they said, hey, we know this is kind of last minute and so what we're going to allow you to do is say these numbers are either final or they're provisional or we have no idea. Now you probably never wanted to be in the category of telling the public you have no idea what the impact is, but a number of companies that we work with, they fall in this provisional category that, um, this is what we think it's going to be. But then I think just yesterday the ITPA sent a letter to the IRS saying, "Can you clarify these 25 issues?"

James Markham: 03:39 So for companies that are reporting their earnings right now that there's just a lack of clarity. So, uh, if anybody thought there was simplification here, it didn't happen. Maybe at the lower individual level, but it's certainly not for businesses and corporate.

Ryan Tansom: 03:54 Well, that's what I'm excited to have you on because I mean, even in our world it mean it was everybody was getting advice from every different angle and everybody was contradicting the different advice. So I mean, you could just totally tell as you went up the chain, even to talking to tax attorneys, that everybody was deferring to some other professional when the, like someone was trying to get a finite piece of advice.

James Markham: 04:19 Even if you just look at the house and the Senate bill, uh, they had some very, very strange language, strange things. The best example in the world that I live in and that's fast growing companies going public or having a transaction in the next five years in initial a bill, they weren't going to tack stock options when... think about it, you are a private company, you have, um, your value's gone up and somebody stock options and they haven't even exercised it. Yet. But they were going to tax you on that Delta between what the fair market value is that that day and what you would have to pay for it with no ability to pay because you couldn't monetize. You didn't even own the stock. We made it into some bill and I think we had, certainly in the tech industry, we had a lot of scare people.

Ryan Tansom: 05:17 Well yeah, because you got a bunch of people that are in theory going to be rich but have no money right now and where are they going to pay that from?

James Markham: 05:24 Oh, exactly. And then if you're the companies, it's like OK, you have to pay the payroll tax liability on that. And so thank goodness that you know, clear heads prevailed and it didn't make it in, but there's still some crazy head-scratching stuff that are in the provisions that, that is a business if you've not seriously gone through, all this talk about qualified advice or gone through it if there's stuff that will be affecting how you're doing business today because it is an effect for year.

Ryan Tansom: 05:58 Um, and I think I was going to say I'm actually, is a great point that I wanted to hear your thoughts on, you know, it's going to be affecting these businesses in day-to-day operations and what does that, you know, so there, because of the realm of the companies that you work with, which are, you're going to go public or they're going to have a transaction. And there's, I think, I'm assuming there's this balance between how do you, what, what are the changes that are in the day-to-day, you know, the annual operations and then also affecting the businesses that are going to be transacting and what are the, what are the two different, you know, a foot each bucket, what do they gotta worry about and I don't expect you to know all the answers, but maybe we can take them kind of like what are the annual impact so people should be looking at and then we can take a second part into the transactions.

James Markham: 06:49 Sure. And then maybe talk a little bit about what people are asking us most. I guess it begins with source of entity. You are taxed at 35 percent and on an individual you are at 39 percent or 45 percent depending on which state you live in. All of a sudden that rate being at 21 percent is pretty attractive. And so from a tax standpoint, you're either taxed as a corporation at 21 percent or your taxed as a path through which could be an S-corporation or an LLC and you would love it to think that, hey, it was a straightforward answer whether to choose one entity or the other. Because what happened is there was this clamoring that if you're going to reduce the corporate rate 21 percent then the pass-through entities, basically the income, get pass-through taxed at the individual rate and those individual rates are still high. So they came up with this a 20 percent deduction. You're a pass-through, but they made the rules so complicated that again, you're going to need an accountant to help you, which I think is great, fantastic for us,

James Markham: 08:07 but, but it's really going to be an analysis that you're going to have to do a couple of high level analysis depending on what industry you're in. I think kind of the rule of thumb is that right now if you're, if you're a C-corporation, you'd be taxed at 20, 21 percent, but there's still a double taxation. If you pay dividends and those are going to be taxed as beer, whatever the dividend rate is, and whereas if you're a path through a, if you qualify for the 20% deduction, it gets you down close to 21 percent, but depending on your bracket may or may not work. So what we're finding is that people have to schedule out what happens if I'm an S-corp, what happens if I'm a C-corp. And then you have to layer on top of that your, really, your exit analysis. So if you're a family business, you're going to be in this. You're never gonna sell. Then certainly one is more attractive than the other. So, but, but again, what we've found is you actually have to put pencil to paper and do the analysis because there's not one way or the other, unfortunately.

Ryan Tansom: 09:17 Well, right? And I think, you know, just the chatter that's out anywhere you go. It's been everywhere in any kind of business communities, this is 90 percent of what they're talking about. And you hear so many people just wanting to make knee-jerk decisions or an S or a C Corp now you know? They start to make these random assumptions and it's like, Whoa, the ramifications of what you're talking about because you may or may not know where your, what your next five years looks like. This is huge. And you know, what is the balance as you're starting to like, look at these, um, these companies that are going to transact or sell in the next few years. What are some of the biggest key takeaways that you're looking at and that are in the analysis that you're helping them with?

James Markham: 10:00 This is before tax or if you're going to be acquired or acquire a company, if you acquire a C Corporation, then the people, uh, if I'm going to acquire you, then I don't get a step up in basis in the stock if it's a straight C-corporation. So if I pay a hundred million for you, then I basically step into the shoes of whatever the tax basis is in your company. And I get deductions for that. If you were a pass through or s corporation then basically I pay a hundred million, I get 100,000,000 mostly for deduction so this analysis, you have to layer on top of this tax reform. I may be great at a 21 percent rate, but when I go to sell my company, all of a sudden I'm not as attractive as a target because they're not going to get a higher basis for what they purchased for. So I think there's things like that that come into play.

James Markham: 11:02 But Let, let's talk about what, what's happening now. You've got companies, large multinationals that are bringing money back because the, they're going to be taxed on their earnings. The, the, you know, the, the larger companies that have accumulated all these, uh, all this money off shore, they're going to bring it back at a favorable rate. So they're gonna have a lot of money to spend. In the past, you know, they've kept it off shore. So really they could only do offshore acquisitions. But now this money's going to be back in the US, that combined with the fact that instead of their current earnings being taxed at 35, it's the 21. There's going to be a lot of cash and so, uh, I think what we see is there you're going to have a, a more viable M&A market from the corporate side. So now if I'm private equity, then I'm a little bit nervous because now I'm competing with more corporate cash and then on top of that, um, if I'm private equity, uh, there's a provision that went in that the disallows the interest over a certain level and so all of a sudden you had all these leveraged transactions that you had in the past that won't exist because there's a limitation on the amount of interest that you can deduct.

Ryan Tansom: 12:24 Can, we can peel that back a layer, James, because I think it's an important thing because there's, the PE firm is really active in the mid-market and you know, there's a lot of banging on doors because I think, you know, a little bit of context and you, you probably have a lot deeper context than I do, but you know, there's what, 5,000 plus PE firms and they've got, you know, this, this certain one of time frame would that they have, if they raise this money to deploy the capital, so there's almost a trillion bucks sitting there in cash and maybe layer and expand on how they usually buy companies because they're knocking on people's doors and there's a lot of really high multiples going on right now because people are trying to earn their commissions to deploy the capital. So there's weird deals going on right now. So. And then can you explain how that works and then how the leverage buyouts work and what that impact is on the actual PE firms?

James Markham: 13:12 Sure, sure. I mean, uh, what happened in tax reform is there is a limit on interest expense of 30 percent of adjusted taxable income. Now again, back to complexity, how you defined it, adjustable taxable income. But in the past when a private equity came in, they would really leverage up the deal to get that interest expense to get higher returns for their investors. Well now that you've got this 30 percent limit and I think that's going to either change the dynamics in terms of how much they can pay or they'll just walk away from deals altogether.

Ryan Tansom: 13:53 How are, how, how far were they going up? I mean if 30 is the limit right now. What were you seeing prior to that?

James Markham: 14:00 Again, it's just the basic math. The less equity I have to put into a deal, the less risk I have and the ability to get a higher return. So I think it's all over the place, but at the end of the day, I think the takehome for the listeners is it's not business as usual anymore. I mean, if, if you're, you're, you're saying that hey, this is the way buyers were looking at me in the past, I've got new buyers, maybe I need to go to a corporate buyer or to see if there's an opportunity there.

Ryan Tansom: 14:31 Yeah, right.

James Markham: 14:33 I think it changes the dynamics there greatly.

Ryan Tansom: 14:38 And you know, actually curious because now all this cash is going to be coming back and so they'll have the, you know, these, these corporations will have the capital. Do they have the infrastructure of the people and the processes to actually be able to deploy it? Or do you, do you see this lag time of them getting their, almost their little, you know, beefing up their M&A departments in order to be able to handle the deals and vet them out and all that stuff?

James Markham: 15:00 Well, I think that large corporates are probably going to have their M&A people so those people are going to be more active in the market. I mean the other issue you have is the shareholders are going to want to return, so you may have more stock buy back. So. So they've got to do something with that cash. And again, it seems to me like if I'm an innovative company, I'm a high-growth something. I want to show investors that I've got other choices to deploy that cash. I mean, if I'm just buying back stock, you know, that's, to me, that's the kind of like giving up. That's the white flag that I have no better use for that cash therefore I'm going to give it back to you. So, um, so that's something that I am in a game or the other thing is I'm certainly with, uh, being able to expense, a hundred percent expensing, asset sales could be a little bit more interesting, especially in capital-intensive industries where I acquired a company I could arguably expense up to 100 percent of the purchase.

Ryan Tansom: 16:08 And how is that different than what it was before? Like in the actual math?

James Markham: 16:15 The way you had it before, typically, you depreciate the property that you acquire over five, 10, 15, 39 years and the new law comes in for certain assets that you acquire, you're able to expense that, uh, a hundred percent. If we take this out of the context of M&A and let's just talk about operating a business, here's another disrupt. Here's another, what I like to call a tax disruptor. Tax reform is really disrupting the way business is done and that is if I make equipment, then all of a sudden I've got a lot more buyers for my equipment because all of a sudden I can go to them and say you can expense a hundred percent. Now the interested- the flip on this is I was talking to a company the other day and he got all excited about expensing a hundred percent of the purchase, but then he says, "Oh, wait, I've been using depreciation as a shield against paying taxes every year. So what you're telling me is I can expense it all this year, but in next year I'm not going to have that deduction. I'm going to have to buy something more." I go, yes, that'll be your new drug. Right. So what, what was said, it's not only just you have to model out the current year, but you really ought to model out your next five years to see what that impact will be. And so you don't want to get hooked on a drug that may not be working for you.

Ryan Tansom: 17:41 Well, and I think that has to be weighed with the, you know, again, even if you're leading up to a transaction because I don't know how many times I've seen deals derail because they'd been buying equipment and depreciating it and then all of a sudden they're like, wait a second, a depreciation recapture and they realize that they have to pay ordinary income and all that stuff they depreciated over the last 20 years so they can't actually net as much as they wanted. So I mean there's a flip side to both sides of the coin. I think.

James Markham: 18:09 Oh there is. And again, it gets back to and you're going to hear this from an accountant, but we love this stuff because it adds to complexity.

Ryan Tansom: 18:19 Job security, right?

James Markham: 18:20 It is. But, but, but the messaging here is if you want, here's the look that this is going to change the way people do business. Uh, let, let's pick another thing. Let's say you're doing business internationally and um, the, the, the rules were changed and there may be different flows of... there maybe taxes that were not taxed before. Um, another, not necessarily tax reform, but you've heard about the tariff on the solar panels? Came out the other day that, uh, there's a tariff on solar panels. And so what we found, again leading up to tax reform and the America-first type theory is we've had a number of foreign companies come to us looking to say we want to relocate to the US. What kind of incentives can we get from state? And so a lot of states wanting to attract manufacturing companies will give incentive for them to relocate their stay from foreign or even within the US. Well the funny thing is I thought that was the solar company that was going to relocate to the US, but when they found out that the tariff starts at 30%, but goes down after that, they're saying, wait, we were going to relocate. We were going to take advantage of that incentive package, but since the tariff rate goes down to thirty percent is still cheaper for us to build it in our third world country.

Ryan Tansom: 19:53 Does it impact. Because I know there's been lots of international companies that had been looking to get into the US through acquisition as well. Does that impact, you know, in foreign buyers for domestic companies as well?

James Markham: 20:07 Definitely, because again, you're, you're looking at different models of- you're taxed at 35 percent, now it's 21 percent, but those acquisitions again to look a lot more attractive. In fact, I was, I was talking to a company the other day that you have inadvert- you may have a, you have a, a deal, a joint venture where you are paying uh, you had determined a royalty based on a tax rate as a certain point in time. So it was a 35. You've got to go back and look at those agreements that you have where the add the tax element and now instead of 35, it's 21 now. The agreement may need to be redone.

Ryan Tansom: 20:51 There's more money there.

James Markham: 20:53 Oh yeah, definitely. And then, uh, again, let's, let's talk about, we had a conference in palm springs, a strategic growth forum, back in November and on the tax panel we had a couple of high-growth companies in California. And uh, their number one issue was employees. If you think about if you're in a high tax state, you no longer have the state and local tax deduction and that, that that's huge. So for California that operates 13 percent, all of a sudden you're only going to get the $10,000 adjustment for that. And so their concern is now about attracting people to a high tax area. Again, here's the business consequence that we didn't think about before, but now I may be losing employees or I may not be able to attract employees because that's, that's the true cost. On top of that, the moving expense deduction got taken away. So now I'm going to have to pay more when I'm going to convince them to come pay more state taxes and guess what? I'm not going to get a deduction for that moving expense. So if you were moving people a year ago, then all of sudden it puts a new lens on it. There's a new cost of relocating people to a high tax area.

Ryan Tansom: 22:20 Those are real dollars too. Because I read the Wall Street Journal article and I can't remember what cities, that they, they rambled off like New York. And a bunch of places in California and such for like the average person was in the upper twenties or thirties for like normal deductions and now it's capped at 10,000. So that's like literally real dollars out of people's pockets plus the moving expense? I mean, that's a big deal.

James Markham: 22:47 I mean, and then the property tax. Forget the state and local income tax, your property tax probably already at 10 thousand. And so, so, so then the question is, is you look at that. Is that going to affect real estate? Right? Is that going to affect, again, certainly if you're in a competition with, uh, somebody in Austin, Texas, who was no tax versus going and looking in the valley, I mean, could you lose people because you know, they start doing the math. I mean California when, um, when the rate went up to 13 percent, I had a couple of companies that relocated. One went to Houston and one went to Dallas and it was specifically for that purpose. So people that don't think that people make decisions based on taxes are somewhat blind.

Ryan Tansom: 23:42 That's all I hear all day long is, you know, what am I willing to sacrifice? Because we're in Minnesota and we've got a high tax bracket here, too, so I mean there's people like as they're ramping up the cell or something, it's like how do I get the hell out of this state as fast as possible and then there's some people that just love their family and love their state enough where they're just willing to suck it up and take it. But I mean people make decisions on that all day long and you know, when, when you think about the high tech companies in the fight for talent that I think is going to be even greater going forward because we've got this huge gap in people that are, you know, gonna step up and take over businesses or step up and take, you know, the high demand jobs of the coders or whatever it might be. I mean those are people making six figures plus, plus the big transactions that they're- that's going to be probably one of the top parts of their decision making process.

James Markham: 24:31 There were changes in executive compensation, being non-deductible, but again, back to your point about the high level talent, that all of a sudden hiring those individuals are going to be more expensive.

Ryan Tansom: 24:47 Can you explain that a little bit?

James Markham: 24:49 That there is a cap on how much compensation is deductible and I believe it's around a million and they included... I think in the past the CFO was not included in that category it changes that.

Ryan Tansom: 25:05 Got It. Yep.

James Markham: 25:05 All of a sudden. And there are a number of employee benefits changes. I think that again, you have to look through because it's like it's a changing world.

Ryan Tansom: 25:18 So I'm kinda curious for my own. As I read these articles and you see all the, like the, it's funny the stuff that actually leaks out to the public and people talk about. Right? Because there's the immediate stuff of, I think it was Starbucks and Verizon or whatever these big companies are that are giving immediate bonuses and you know, immediate, you know, up into the minimum wage. So you, you see these conflicting stories and you know, depending on all this stuff that we talked about, there's probably a lot of reasons why, but you have those that are having this immediate cash because of their structures and how they're doing. But then I read another article on, uh, I believe it was ibm and they hit their first record, their first growth in 26 quarters, yet they got slammed with a 5.5 billion dollars for the tax that they wouldn't have had. So there's two completely different scenarios there where some people are giving money away and some people are getting hit, you know, where's the, what's the answers behind that I guess is my question.

James Markham: 26:39 Let's start with they gave big bonuses, besides enamoring themselves with the president, which people ought to be doing that all the time. But if you do the math, you're getting a 35 percent deduction if you pay it, if you pay the last year versus a 21 percent if you waited until today. So it's like, well, it's humorous being a tax professional and they, you're listening to the news because everybody has like their opinions on this was good or bad, but at the end of the day, it's like I'd take the deduction of 35 percent every day versus 21. I mean, I care about my employees, but at the end of the day it's, hey, I get a bigger tax reduction by doing that. Now you talked about the earnings reports that are coming out from companies, if you think about it, um, they have deferred tax assets that are valued at 31 or 35 percent. All of a sudden those assets are only, as they turned around, are only going to be worth instead of a 35 percent deduction when it turns it's only worth 21 percent. So they take a big hit in the financial statements because all of a sudden that asset they have is not as valuable as it was last year. So I think a lot of companies that are kind of spell that out, they're calling this a one-time charge. But again, for, for if you're doing your analysis, you need to get into the details and like we talked at the beginning of the program, there were a lot of professional type of items so companies will be adjusting those throughout the year. But um, it does change the landscape in terms of, um, of what the financial statements look like if they were an app that 35 percent, now it's 21 percent, but there's a difference there.

Ryan Tansom: 28:15 That's obviously going to be a little bit bigger impact on an asset-heavy industries, correct?

James Markham: 28:22 Exactly as the deductions instead of turning around a 35 percent, now they're 21 percent. So again, that is why I love this because all of a sudden tax is important. We got the assurance people in our business that all of a sudden, wow, instead of not inviting tax to meetings, we're going to all the meetings.

Ryan Tansom: 28:53 So you know, when you're looking at, you know, if you're a business owner and yeah, obviously you've got some preparation for operating in your, you know, and you're thinking, thinking more about the possibilities. I mean, how do you start? Where do you start with all this stuff and weighing all these variables together?

James Markham: 29:14 One thing that, and again, I've been through a few deals over the past year and you still have some tried-and-true principles you ought to be applying. One is- it's a readiness concept and we call this either IPO readiness or exit readiness, but basically if you need to have your books and records and have a full everything fully analyzed. I mean, uh, oftentimes there's areas in tax law that people let slide like sales tax, like they're in business in a bunch of different states and they haven't been collecting sales tax. What happens on on a deal as if when the due diligence team comes in and does diligence on your company and finds out that you haven't dotted all your i's, crossed all your t's in determining what that liability is, then it does a couple things. One is it makes them dig deeper into everything else. So there's a major time drain on you trying to put the information together.

James Markham: 30:17 But the other thing is you're going to take a haircut because all of a sudden they're going to determine what is the most conservative liability out there because you haven't taken care of it yourself and you're going to take a haircut on price. So the way this becomes important is that was always important to be ready before, but now you've got this change in tax law and part of your dialogue with the potential acquirer will be, hey, this is how we've treated these things and this is how they're going to be under new tax, Blah blah blah. If you don't have a clear, crisp dialogue on how that happens, you can take evaluation yet or they're going to dig deeper in is going to be a major time drain.

Ryan Tansom: 31:02 I actually just peeling that a layer deeper. Do you actually see like the before and after? Do you actually see valuations? I mean it's probably too early to tell, but are valuations being impacted because of how things are deducted or different things like that. I mean, are you going to potentially see lower valuations depending on the industry and such?

James Markham: 31:23 We're in January this, this just happened December, so I've not seen yet, but, but again, it just gets back to what you can expense, you can expense something immediately that you know, your ROI is definitely going to change and therefore your ability, what you should pay for that, and this is the other thing, we've talked about this before, is I just think that there's going to be a lot, there's a lot of cash out there that, that and, and maybe from sources that you didn't think of before because they brought that money back and they haven't been active in the market or they simply go down from a 30-35 percent to 21 percent. Right. And they've had to deploy that cash.

Ryan Tansom: 32:07 I was gonna say, I think you brought up an interesting point too, because I think, you know, there's this whole world of, and you guys got a big division too um, and I believe Bill's actually scheduled to come on the show at some point. But, um, you know, the whole M&A space and the advisors that are out there knowing that they should start looking at different, different places. For these potential buyers to not just blindly following your investment banker because they've always been able to do it because I think the landscapes are changing enough that you should be asking questions regardless.

James Markham: 32:39 Definitely, and again, I take it back- so I do have a deal that's going on right now where we're advising a company where they had, had they looked at the company only to say back in September timeframe and you know the majority of the multiples were not from EBITDA, but our advisors had said companies still run cash flows and so if they did their cashflow analysis back in September with the 35 percent rate and now on a go-forward basis, there's a 21 percent rate, they're getting the big benefit there. So we've advised our people to bring that into the discussion to say, you know what, there's the multiple that you've been dealing with, but you're going to be getting more cash. Therefore I think you ought to pay more for it.

Ryan Tansom: 32:39 Which is legit.

James Markham: 33:27 I just had another kind of a humorous one. But entertainment deductions, they're no longer deductible. And so you talk about how we do business, it's like a lot of it's on the golf course, a lot of it during a basketball or football game. It'll be interesting to see what happens there. Do you still make those same decisions knowing that you're not going to get that deductible?

Ryan Tansom: 33:53 I was going to ask you about that because that was like when we sold that was like- it's funny because I got a presentation that I do in front of business owners and what I always say, by the way, when you sell your company, you no longer have that company credit card and everybody laughs because everybody uses it for all the concerts and all this stuff that anywhere you talked business and you know you could potentially write off. So I mean are they going to have... Is they're going to be a way where you can classify that stuff as sales and advertising instead? Or is it like literally no food, no entertainment like is a no-go. I mean how does that...

James Markham: 34:26 The meal is the deductible; it's the entertainment. And so we were having a discussion yesterday is that food can be a lot more expensive now and the entertainment, you know, again, it's like why am I guess the IRS going to see through that, but it all of a sudden if you're in a town that has a, a, a crappy basketball team and you're paying for a suite, is that just isn't going to be a little bit different now because it becomes more expensive. Or, or on the flip side, are they going to have to charge less for their product? Right?

Ryan Tansom: 34:26 That's amazing.

James Markham: 35:08 So if you're in the entertainment business, it's probably not a good thing for you. I mean all of the sudden it's like, you're going to have to make your product better or you're going to have to give a discount.

Ryan Tansom: 35:20 And that's a huge deal because, uh, so we used to at our, at our old company, you know, work with the Minnesota Wild and all these sports teams and you have this awesome Barbara go back and forth between services. And then you'd be able to write off the suites that you had every single year, every single concert, and you know, we'd like pack the concert full half family and friends and half employees because it was, you already committed to it. But I mean, you're not going to just loosely make those decisions when it's 16 grand a pop per suite.

James Markham: 35:47 Yeah. Think about that. I think that could change the dynamics of certain things. And if you're the salesman that's been your whole life, taking people out on golf outings and all of a sudden that would be sad for him.

Ryan Tansom: 36:06 Right. You're going to have to figure out a new different talent or something like that. I mean, it's, it's a challenging thing or like, I mean the, the fair weather fans that are out there already and you just go to the Twins up in Minnesota then up and down all the time and, you know, eat it at the end of the season of a horrible season. You'd be begging people just to go out and drink and go to a Twins game with you because you already the tickets.

James Markham: 36:29 I'm in Sacramento, and I've been through a few of those years. My favorite was we used to have court-side seats in the old arena and I just moved down from Seattle and I got them and it was the King's Clipper's game. I call a client and I say, Hey, I got the Kings/Clippers game, you want to come? And it was like silence on the phone. He said, James, did we do something wrong? Did we not pay a bill? What makes you think I want to go to King's game, let alone a Kings/Clippers game?

Ryan Tansom: 37:05 That's awesome.

James Markham: 37:13 The other side of the thought is the impact on charitable.

Ryan Tansom: 37:14 Actually, let's, let's go into that because I think that's a huge deal too because a lot of businesses, you know, they, they and charities, I have sat on the board of multiple charities before and you out, like we used to always go to our vendors for the big huge ticket stuff and the write-offs and all that kind of stuff. So what do you see the ripple effect being?

James Markham: 37:33 The charitable is more on the individual side, the deduction side. You're still going to get- I'd have to double check on that, but uh, it's more on the individual side if you don't itemize. Then all of a sudden, because they've increased the exemptions, so this one, um, because charitable contribution is for the individual on the, on the corporate side that I don't think that's effective. I have to double check though,

Ryan Tansom: 38:03 But that, that's impactful on the charities because that means that the charities should be hitting up the businesses harder then because they're going to be losing a good chunk of their, the people that just would throw the last little bit towards them. So I mean I think that will impact the businesses and the people at the same time.

James Markham: 38:23 The high income guys, they're still going to get those deductions because they're going to itemize. But it's the, you know, I, I've been, I've been told are really separate articles, but these rank and file people that make less money that all of a sudden will itemize it. All of a sudden that becomes a decision for them.

Ryan Tansom: 38:41 Kind of wrapping up here, James, I mean, is there, you know, because we talked about a lot of different things here in a and there's still a lot to be determined as 2018 unfolds over the next 11 months. I mean, is there anything you want to highlight or maybe reiterate to the listeners?

James Markham: 38:54 It gets back to the planning and execution and again, if you have thoughts of being acquired or going public in the future that understanding what the changes are, not only how they affect your taxes, both the indirect how it might affect your business and that it's not business as usual, but you can't put your head in the sand that just say, hey, I'll continue to do things the way they were because again, this has become a disrupter and for certain industries more than others, but again, I think any great business taxes while in the past I always used to say, you know, you're taxed on 35 percent and if you're going to say maybe 40 percent of your income, don't you, shouldn't you spend a little more time on that, that area to see ways to minimize that and make sure you're getting it right, but you don't have problems.

Ryan Tansom: 39:53 All right. It's a big deal. I mean, you, you work so damn hard to make all the money and like make sure you're doing it right so you can keep as much as you can.

James Markham: 40:01 Exactly, exactly. And then it's one of those things where, I mean I think our firm the day after the bill was signed, we put on a webcast, we've had webcasts. If you get on the EY site, then you can get a lot of webcasts and information on it, but um, my concern, if you're not one of the larger firms, then your ability to get answers on some of these complex questions may be difficult and therefore having a source of- we've got a national tax departments that all these people do and we hire people from the IRS, these people that specialize in, in the code and therefore they know what the rules are, they talk to the people and they know what the change that are going to be. So, talking to a qualified advisor. I know it sounds totally self-serving, but in this case, in this situation of complexity, you gotta be doing that or else you could have some surprises.

Ryan Tansom: 41:00 The surprises that are not enjoyable.

James Markham: 41:04 Yeah, definitely.

Ryan Tansom: 41:05 James, what's the best way for listeners to get in touch with you?

James Markham: 41:08 I think if you get on the website, uh, EY.com I think depending on where you live, we've got offices, I think, uh, throughout the world and definitely in the US and their contact information would be there.

Ryan Tansom: 41:23 Awesome. Thank you so much for coming on the show. I appreciate it.

James Markham: 41:26 Right. Thank you.

Takeaways

Ryan Tansom: 41:32 Thanks for tuning in and I really hope you enjoyed the episode with. I had a blast because I was able to get some clear answers around the subjects that I think are one of the most important pieces of information that we need to know as owners, as we're running our businesses. But then also as we're prepping them and preparing ourselves for an exit, whenever that might be, you know, I'll keep these takeaways really quick and short because I think everybody had their own big ones. But I think the first one to really highlight for me was the 100% expenses and how that potentially could change the asset or just is, is huge. Because that could potentially open up the acquisition gates like we'd never seen before. And if we know the value to the buyer, then we'll be able to position ourselves for a higher valuation because we know what it means to that future buyer. And then also taking a new look at your business. If you might acquire a couple of companies before you eventually sell because it's more advantageous based on the new laws.

And the second big takeaway is do not just go change your corporate structure because you can save a couple dollars right now when you could potentially completely derail the sale because you're not as appealing to a buyer and or it's going to cost you double taxation when you eventually sell just because you had someone give you some random advice that that might be a good idea. It might be, but just make sure that no matter what strategy you're going through, you look at all the scenarios from all the different angles.

And I think that would probably be my last takeaway is do not make any major decisions. Sit down, sir. Planning out your budget. Started looking at how your operations, your exit strategy, and all those tie together, and then layer your tax plan on top of it so you can make the right decisions. So I hope you enjoyed the episode. If you really enjoy this, go on itunes and give us a rating and until next week.