5 Things Manufacturing Execs Need to Know about Corporate Taxes
Manufacturing executives are asked to address a multitude of concerns on a daily basis. Everything from balancing daily operations to supply chain management, regulatory modifications and advances in modern technology are required to maintain a company’s competitive edge. An equally important issue that CFOs must address is the ever changing income tax environment. There are opportunities for tax planning and tax saving that can have an immediate impact on the finances of manufacturing and distribution firms.
Here are 5 things manufacturing and distribution execs should think about when assessing the current tax environment.
1. Domestic Production Activities Deduction
The “Section 199 Deduction” or “Production Deduction” is an extremely beneficial deduction that encourages income from manufacturing and distribution for production, growth and extraction activities derived fully or mostly in part from the U. S. The benefit allows for a deduction of 9% of qualified production activities income. While there is a limit on the deduction to taxable income and 50% of W-2 wages, most companies will still see a benefit.
2. State and Local Tax Considerations
State and local tax codes change constantly making compliance efforts increasingly difficult. Although states are competing for tax payer money, the tax burden may be reduced by considering the deduction of several items: sales tax and personal property tax exemptions for manufacturing and distribution machinery, sales and use tax exclusions for items not sold to end-users, enterprise zone credits and renewable energy incentives provide companies with benefits related to state tax compliance. There are also federal credits like the Research and Development Tax Credit that are recognized at the state and local level to incentivize companies to operate within their jurisdiction.
3. Tangible Property Regulations
Manufacturing companies must take on certain expenses like capital expenditures and repair and maintenance costs to sustain or grow the business. Because of this, the IRS has issued final tangible property regulations that determine which expenditures for or related to tangible property are capitalized or expensed. By implementing these new regulations, manufacturers distributors will be able to realize current tax savings.
4. Interest Charge – Domestic International Sales Corporations (IC-DISC)
Manufacturers working in the global community must address certain challenges that those operating within the United States do not deal with. However, providing goods and services to the international marketplace provides some unique tax savings opportunities. The Interest Charge—Domestic International Sales Corporations (IC-DISC) allows a company to exchange their corporate income tax rate to with the dividend rate. Because the IC-DISC is a separate entity from the IRS, the IRS must approve an election in order to take advantage of the preferential tax treatment.
5. Annual Tax Relief Extenders
CFOs should pay special attention to tax issues addressed in Washington each year, despite Congress’s failure to settle on tax relief extenders in a timely manner. Specifically, manufacturing and distribution companies should follow extenders related to “Section 179” and “Bonus” depreciation. If these tax code sections are extended, it would allow for additional tax deductions for qualifying property and equipment placed in service during the year.
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Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.