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Ebong Eka

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Tax Breaks for Manufacturing? Do We Need Them?

Posted: 02/ 8/2012 5:43 pm

Over 37 million Americans watched President Obama lay out his plan for the country in his 2012 State of the Union address. The president's speech was expansive and encompassed a synopsis of his plan to address some of the nation's pressing issues. The most important issue is the economy, which includes the unemployment rate, housing market, jobs and small business.

If you follow me on Twitter, many of you would have seen my tweets on the economy in response to the speech. I focus on small business because small business fuels the economy. More importantly, it's the government's duty to aid small business growth. Despite being a fiscal conservative, I have to hand it to the Obama administration for aggressively implementing economic programs for small business (insert Solyndra joke here -- but at least he's trying!).

Here's an excerpt from President Obama's speech:

We should start with our tax code. Right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let's change it.


...if you're an American manufacturer, you should get a bigger tax cut. If you're a high-tech manufacturer, we should double the tax deduction you get for making your products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.

Now that makes a lot of sense... and believe it out not, (I often remind my rhetoric spouting liberal & conservative friends) a wonderful tax already break exists for American manufacturers. Maybe talking about this particular tax break isn't flashy enough for the current political landscape but it's still an important tax break for small business manufacturers.

On the other hand, I do take issue with the use of "loopholes and tax breaks." Companies don't receive tax breaks to go overseas because that's how the tax code was written. Companies have operations overseas because America has one of the highest tax rates in the world.

Section 199 of the Internal Revenue Code (or the Domestic Production Activities Deduction) provides a tax deduction for certain U.S. based-companies in the manufacturing industry. Section 199 comes with a very complex set of rules but chances are many small businesses in the manufacturing industry will qualify for the deduction.

The Basics:

In 2010 and following years, Section 199 allows manufacturers to deduct 9 percent of their "qualified production activities income" (QPAI) in 2010 and following years. The point of the deduction is to reduce the tax rate of income that's attributable to 'domestic production' (companies who manufacture in the U.S.).

All small businesses in the manufacturing industry should consider exploring this tax deduction because with the right guidance, they can save a lot of money that can reinvested into their business. However, businesses should weigh its benefit against the cost of calculating and supporting it. Talk to your CPA or tax advisor to determine if you qualify for the deduction.

The president's State of the Union speech also reminded me about a new yoga/activewear company in the Washington, D.C. area whose founder was inspired by a personal experience with activewear. Danielle Dobin, felt that working out after a pregnancy was a good thing... but her pricey yoga pants left a lot to be desired -- they were unflattering, lacked core support and exposed far too much skin when she bent over a spin bike or took an inversion in yoga. She was inspired to create Apifeni (pronounced "epiphany").

Danielle started Apifeni to not only create a better pair of yoga pants but to encourage women to feel spectacular and not self-conscious. Apifeni's growth has been well documented in the Oprah Magazine, Allure, SELF, SHAPE, the Washington Post and many other TV outlets. You can learn more about Apifeni's mission and products at www.apifeni.com.

This is an example of an amazing small business that could use all the tax breaks available! If they qualify, the Section 199 deduction can save Apifeni tens of thousands of much needed dollars. That money could be used to hire new employees, grow the business and fuel the economy. A tax break that rewards American small businesses for staying at home is a tax break that matters! Now if we can only get past the rhetoric and back to the economy!

 

Follow Ebong Eka on Twitter: www.twitter.com/ebongeka