Manufacturing

Tax Update for Manufacturers

By Mary Richter
June 30, 2009

What will ARRA do for your company?

 

We hear so much about the Stimulus Act (American Recovery and Reinvestment Act of 2009, or ARRA), but what does it really mean for manufacturers? There are a number of tax provisions that apply to businesses, and now that the dust has settled, how will they help you?

 

The most broad based tax incentives are extensions of existing tax breaks, namely bonus depreciation and Internal Revenue Code Section 179 expensing. These provisions allow for immediate expensing of all or a (significant) portion of the cost of capital equipment placed in service through calendar year 2009. If you’re continuing to purchase capital equipment, this provision can truly aid cash flow by reducing current taxable income, regardless of the payment terms related to the purchase.

 

However, many manufacturers are struggling just to stay in business through these difficult times and really can’t benefit from such tax deductions. In those cases, taxpayers might benefit from accelerated AMT or research credits in lieu of bonus depreciation.

 

In other cases, eligible small businesses (those with annual gross receipts of less than $15 million over a 3-year period) can elect to carry back losses incurred in 2008 and 2009 beyond the current 2 year limit to three, four or five preceding years.  While this provision doesn’t apply to most companies, it certainly does assist small companies in monetizing losses and providing much-needed working capital. In addition to ARRA’s outright tax provisions, there are a number of other of the Stimulus Act that might affect your business. Most businesses are aware of the new COBRA rules that require businesses to offer COBRA benefits to terminated employees and to fund 65% of the cost of the benefits (this cost is recovered through quarterly payroll filings). 

 

But wait, there’s more. Don’t overlook the non-tax portions of ARRA. Energy credits and grants are available, as well as expanded work opportunity credits to businesses and a host of incentives for home builders, energy producers and consumers. Again, these measures can help to cover the cost of buying and producing energy efficient products. Other portions of ARRA include funds for workforce training and development,  and energy and infrastructure investments, all of which are designed to introduce additional spending with expected multiplier effects to the overall economy. These measures can also help businesses by providing valuable training dollars and qualified workers. Up until now, most of the ARRA money has not been distributed; agencies have not had guidance on how to give the money to potential recipients. The good news is that things now seem to be moving ahead.

 

Perhaps the best news is that despite the deepest recession in more than 30 years, economists do expect a turnaround in the fourth quarter of 2009. Most economists agree that the recovery will be slow and that a return to pre-October 2008 market levels will not occur for several years. In the meantime, survivors of the downturn will have the opportunity to emerge with a stronger foundation for the future.   Although it might not happen until 2010, we will start to see the real stimulus effects when hiring returns and unemployment decreases. In the meantime, there are significant tax and other incentives to be distributed under ARRA. The trick is being in line when the checks are handed out.

Download the 2009 Second Quarter Manufacturing & Distribution Update.