Three Percent Last Year, Six Percent This Year, and....
This may come as a very pleasant surprise: you could be eligible for a sizable -- and unsuspected -- gift from the IRS that you’re not taking advantage of.
To encourage manufacturing to stay in this country rather than being outsourced overseas, congress passed a tax credit of 3% for the years 2005 and 2006 for businesses involved in domestic “manufacturing”. In 2007 the credit increases to 6%; in 2010 it’s 9%.
Why the quotation marks around “manufacturing”? Because you may be considered a “manufacturer” by the IRS even though your company’s products or services don’t seem like they’re part of “manufacturing”. For instance, a contractor remodeling an existing structure for business use is considered to be a “manufacturer” on that project -- as well as the architect who drew up the plans. Electricians, plumbers, roofers, etc. who work on the project can receive a tax credit of 3% of their profits on that particular project as well -- if they know enough about the credit to file for it.
If your company simply assembles parts to create a product -- even if your company didn’t actually “manufacture” any of the parts (think someone who assembles custom home computers, for instance) -- it also falls into this category. As you might expect, there’s a lot of fine print involved in qualifying for this credit. However, most of the fine print seems to expand the boundaries of what activities qualify, rather than restricting them.
After you’ve tallied up all your profits for the year on these “manufacturing” projects and calculated your taxes owed, deduct 3%. In other words, if you’re a contractor that had net profit of $200,000 last year in activities that qualified, you’ll save yourself an immediate $6,000 simply by submitting IRS form 8903. This year (2007), that savings will double to $12,000!
Because there are so many amendments and additions to the tax code each year, it’s easy for opportunities like this to slip under radar of a CPA at tax time. That’s why I make it a point to keep my clients up to date on items like this one. It has made a substantial -- and potentially overlooked -- difference in several of my clients’ bottom line.
Robin Johnstone Consulting, LLC
Offices in Albuquerque and Santa Fe
Robin Johnstone Consulting