Tax law impact is not always viewed from a manufacturing standpoint. In fact, most people look at the individual tax implications of any tax law change before they consider the business impact. The most recent tax law update does have several stipulations that will have a positive impact for manufacturers. As history has taught us, these laws may be changed in the future, so it is important for manufacturers to understand their implications and leverage the benefits now.
The first change that will positively impact manufacturers is the reduction of the corporate tax rate to an even 21%. The previous corporate tax rate was 35%. This creates a large tax burden for corporations and can eat away at capital that could be used to invest in other projects. This 14% decrease may not sound significant, but for multi-million dollar corporations, this is the difference in creating new jobs and other activities that have positive effects on the economy.
The second change that will have an immediate impact on manufacturers is the ability to fully expense capital assets, and increases Section 179 expensing from $500,000 to $1 million. The ability to expense short term capital assets reduces corporation’s taxable income, and reduces corporation’s depreciable asset load.
The third item that manufacturers will find appealing is the preservation of the R&D tax credit. Offering a tax credit for corporation’s R&D activities provides incentive for exploring new technology and creative solutions for manufacturing environments.
The final change that may be compelling for some corporations is the reduction of the pass-through tax rate from 39.6% to 37%. Again, this may not seem significant, but for multi-million dollar organizations this frees up additional capital. In addition to the reduced tax rate, pass-throughs will also be allowed a 20% deduction of qualified business income.
Additional information regarding the tax bill may be found on the IRS website.