Recognizing that not one CEO or CFO is nervous about the election, I thought it might be a good time to reflect on those government incentives that are there to help US manufacturing companies competeglobally.
Right? I mean who could possibly be nervous about a potential tax hike at a time when
global competition is increasing and US manufacturers need to find more ways to be competitive.
Let’s look at four incentives that can produce substantial tax reductions for US manufacturing companies. It’s important to remember that while taxes are a necessity, taxpayers are not required to pay a penny more than is required under the law.
“…for nobody owes a public duty to pay more than the law demands.”
-Judge Learned Hand
Research Tax Credits are better than ever
In 2015, the PATH Act (“Protecting Americans from Tax Hikes”) was enacted making the federal research tax credit permanent. As importantly, it provided for two significant provisions that will reward the sweat equity US taxpayers put into building their businesses in developing innovative solutions.
Beginning in 2016, US corporations that qualify as eligible small businesses and take a research tax credit can utilize the R&D tax credit against alternative minimum tax. For a more detailed discussion on this provision, you can read the blog we released earlier this week called Offsetting AMT: The New R&D Tax Credit.
The second provision relates to start-up companies and using the research tax credit against payroll taxes that we will cover in another blog next week.
Domestic Production Activities Deduction (DPAD)
In 2004, Congress enacted the DPAD, a deduction provided to US companies that produce qualifying property in whole or significant part in the US. It includes property that is manufactured,
produced, grown, or extracted by the taxpayer. The deduction is limited to the lower of 9% of qualified production activities income or taxable income but can generate a substantial benefit.
Cost Segregation-Tried and True Opportunity
Many companies forget that the purchase or construction of a building can generate an impactful reduction in their taxable income by engaging a cost segregation expert.
Cost Segregation is the breaking down of your building at an engineering level to more quickly depreciate components of the building that have shorter useful lives for tax purposes. By understanding which components have shorter lives, the amount of depreciation taken in the initial years can greatly increase thereby lowering your taxable income and freeing up cash to grow the business.
IC-DISC: An Exporter’s Ace Card
The IC-DISC or Interest Charged-Domestic International Sales Corporation is a US corporation generally set up as a subsidiary to an operating company that is exporting products from the US. While there are a few hoops to jump through, a US company that is manufacturing products from US sourced materials can typically qualify and generate substantial savings. We have written a number of blogs on the IC-DISC and it continues to be an outstanding opportunity for US Companies.
You can learn about the basics by reviewing one of our first articles on the subject: IC DISC – Tax Savings Through Exporting.
Having an expert in your corner for these tax incentives is critical to your game plan in the global marketplace. Many times, we have been asked to complete a research tax credit study for a client and find they can qualify for the DPAD and IC DISC.
We recommend utilizing the services of an expert (shameless self-promotion below) in this area in order to mitigate potential mistakes, maximize your incentives and develop the proper documentation.
At Acena Consulting, we recognize that you, the small business owner, have a lot more on your plate than worrying about tax incentives. Our role is to bring strong tax technical knowledge, ability to build efficient processes, answer the questions you may not know to ask. We take this concern off your list so you can focus on your core business.
“Wise people understand the need to consult experts; only fools are confident they know everything.”
Want to learn more about the magic of our approach?