Produce big manufacturing deductions
The so-called “manufacturing deduction” isn’t just limited to companies that manufacture products in the traditional sense of the word. It’s available to a wider range of business operations than you might think.
What’s more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here’s some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Depending on your situation, you may want to modify your business operation to qualify for the increased deduction in 2010. Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity. We can make a definitive assessment of your situation. Please do not hesitate to call us and schedule a meeting for this purpose.
Double tax benefit for NOLs
The new “Worker, Homeownership and Business Assistance Act of 2009″ extends and expands the tax break for net operating losses (NOLs) created by the 2009 economic stimulus law. What’s more, some business owners may be able to realize a double tax benefit.
Here’s a quick recap: A business can normally carry back an NOL for two years and then forward for up to 20 years until the loss is exhausted. However, the 2009 economic stimulus law allowed a qualified small business to carry back NOLs for up to five years (either three, four or five years). This opportunity was only available for NOLs in tax years beginning or ending in 2008.
For this purpose, a “small business” was defined as a business with an average of no more than $15 million in gross receipts over the three-year period ending with the tax year of the NOL.
Other businesses could still carry back losses for two up to two years. The new law sweetens the deal in two ways.
- The election to carry back losses for up to five years is extended to businesses of all sizes, but the carryback to the fifth year is limited to 50% of the available taxable income for the year.
- The election to carry back losses for up to five years is extended to NOLs incurred in either 2008 or 2009, but generally not both tax years.
However, if an eligible small business elected to carry back a 2008 loss under the prior rules, it can make the election for an additional year. Therefore, your small business may benefit from extended carrybacks for NOLs in 2008 and 2009.
The new tax break for NOLs is available only for a short time. For more details about this new tax break, contact our office and one of our expert staff members will be glad to assist you.
Seven Facts about the New Sales Tax Deduction for Vehicle Purchases
Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.
Here are seven things you should know about this new deduction:
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State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
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Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
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Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
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This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
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Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
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The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
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The deduction may not be taken on 2008 tax returns.
Consumers who are considering buying a new car may find that this tax incentive means there may have never been a better time to buy.
