Article written by:
Molly Waite, CPA
Tax Senior Manager
The Tax Cuts and Jobs Act signed into law by President Trump on December 22, 2017 brought extensive tax reform for all taxpayers including manufacturing companies.
The following are some of the major tax law changes passed as part of the new bill that directly impact manufacturers:
- Corporate tax rate reduction to a flat 21% and a new deduction for income from pass-through entities for tax years beginning after December 31, 2017. The reduction in tax will provide an increase in cash flow to purchase new equipment and hire new employees to expand business.
- Immediate 100% expensing of qualified new and used fixed asset additions acquired and placed in service after September 27, 2017 through December 31, 2022.
- Separate from the immediate 100% expensing, the maximum amount of qualified fixed asset additions deductible under Section 179 increases to $1 million with the phase-out threshold increasing to $2.5 million for property placed in-service after December 31, 2017.
- The domestic production activities deduction under Section 199 is repealed for tax years beginning after December 31, 2017.
- The corporate alternative minimum tax is repealed for tax years beginning after December 31, 2017.
The following are a couple tax advantages for manufacturers that remain untouched by the new bill, but were subject to change as part of the early drafts of the bill:
- LIFO inventory method used by many manufacturers that have increasing prices over the years.
- R&D credit available for manufacturers that develop new products and processes. However, also tucked into the new tax bill is a change that would limit the ability to deduct R&D expenses as incurred effective for tax years beginning after December 31, 2021. After that date, R&D expenses are required to be deducted ratably over a 5-year period.
For further discussion regarding the impact of the new tax bill to your manufacturing company, please contact your GBQ tax advisor.