In the wake of the ongoing recession, many manufacturers have been negatively affected by either a lack of demand for products or increased labor costs that make it very difficult to compete in an increasingly global market. In this environment, it is increasingly important to make sure you are taking advantage of tax benefits that exist to help your business. Consider the following:
- In 2010, the Domestic Production Activities Deduction (DPAD) increases from 6% to 9% of net domestic production income. For example, a taxpayer that derives 100% of income from qualified domestic production activities will reduce their effective tax rate by an additional 1% for federal tax purposes. This deduction is taken at the corporate level for C corporations. The deduction is passed-through to S corporation shareholders or partners of a partnership and deducted on the individual's income tax return.
- If your industry is experiencing an increase in raw material costs, you should evaluate whether adopting the Last-in, First-out (LIFO) method of inventory valuation would provide significant benefits to your business. Alternatively, if you have previously adopted LIFO, and prices are decreasing, you might want to determine if a change in inventory valuation method is warranted. A change from the LIFO method would allow the tax effect of the LIFO recapture to be spread over four tax years rather than the entire amount being recognized in the current year. The main downside is that you will have to wait five years to re-elect LIFO (Note: The current White House budget proposal includes a phase-out of the LIFO inventory method in 2012).
- The HIRE Act exempts an employer from paying the employer portion of old-age, survivors and disability insurance (OASDI) taxes or railroad retirement taxes for the remainder of 2010 for new hires (hired after February 2010) who were previously unemployed. In addition, employers can also claim a credit of up to $1,000 for retaining each of these new employees for at least one year. Employees that are hired must meet certain requirements such as being employed for less than 40 hours during the previous 60-day period before employment begins.
There are many more tax opportunities available that might fit your specific situation. Please contact George Adams at firstname.lastname@example.org to ensure that you are taking advantage of all possible tax deductions and credits for 2010 and beyond. Visit the Schneider Downs Tax Advisors Web site for more information.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.