The American Taxpayer Relief Act of 2012, which pulled the nation back from the “fiscal cliff” on January 1, contained two provisions of interest to manufacturers—extension of the Research and Development (R&D) Tax Credit that expired in 2011, and enhanced Section 179 capital expenditure deduction limits for 2013.
The National Institute of Standards and Technology’s Hollings Manufacturing Extension Partnership (MEP) reports that the bill extended the R&D tax credit retroactively to January 1, 2012 through December 31, 2013. While the measure has never been a permanent part of the U.S. Tax code, it has always gathered strong bi-partisan support to be extended on a temporary basis.
Since the IRS eliminated some of its restrictive language in 2004, the R&D credit has been increasingly valuable for manufacturers that employ engineers or engage in product and process testing. The R&D credit benefits manufacturers of all types, including those that design and develop their own products as well as those that make parts for their OEM customers.
The MEP reports that about 70 percent of the credit dollars are derived from the salaries of employees devoted to qualified research activities, making it a wage-based credit available to a variety of manufacturing enterprises.
A second provision of the tax act extended the U.S. tax code’s Section 179 tax deduction. The 179 deduction allows companies to deduct the entire purchase price of qualifying office equipment, software, and other business needs in one year, rather than over the typical five-to seven-year depreciation schedule.
Manufacturers should check out how these two provisions may impact their operations.