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Fiscal Cliff Averted. Now Where Do Manufacturing Companies Stand?

Posted 10:07 PM by

Congress has said that the tax side of the “Fiscal Cliff” has been averted. January 1, at the 11th hour, both the Senate and the House approved the American Taxpayer Relief Act of 2012, and President Obama signed the bill into law the following day.  So where, or how, will manufacturing companies feel that relief?  

As of Dec. 31, 2012, many business tax provisions were set to permanently expire. The newly passed legislation has extended many of these provisions through 2013. 

  • The well-known business tax code Section 179 encompassing small business expensing has been extended through 2013. 
  • For 2012 and 2013, the expensing limit of qualified property under code Section 179 is $500,000 with a $2 million investment limit.
  • Also enhancing the tax effect of capital investments is the extension of bonus depreciation. The Act extends bonus depreciation through 2013, allowing 50% of qualified property to be expensed in the initial year of use. 
  • The final depreciation-related provision allows for the extension of 15-year straight-line depreciation for qualified leasehold improvements through 2013.

Other selected business provisions that may affect manufacturing companies are as follows:

  • The research credit has been restored for 2012 and extended for 2013. The Act also added modifications for businesses under common control and situations where there is a change in ownership.
  • The Work Opportunity Tax Credit has been restored for 2012 and extended for 2013.
  • For S corporations, the rules related to basis adjustments for charitable contributions of property have been restored for 2012 and extended for 2013.
  • The reduced five-year recognition period for S corporation built-in gains tax has been restored for 2012 and extended for 2013.
  • The 100% capital gain exemption for qualified business stock has been restored and extended for stock acquired prior to Jan. 1, 2014.
  • The Alternative Fuel and Alternative Fuel Mixture Credit has been restored for 2013 and extended for 2013. This includes propane used in forklifts.

It is important to note that the Act did not extend the 2% Social Security payroll tax cut that had been in place in 2011 and 2012. Thus, all employee wages below $113,700 will be subject to the full 6.2% Social Security tax rather than the reduced 4.2% that applied in 2011 and 2012.

The information covered above only reflects business tax effects of the Act and does not encompass individual, estate or gift tax provisions that are likely to affect owners of flow-through manufacturing companies. For more information on these provisions, visit Katz, Sapper & Miller’s news page. We would be happy to discuss any of the provisions and their impact on you and your business.

About the Author
Ali Todd is a director in the Katz, Sapper & Miller’s Business Advisory and Veterinary Services Groups. Ali works closely with her general business and veterinary clients to prepare client financial statements, tax returns and business plans as well as provide other general business, consulting and accounting services.

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