Tag: Manufacturing

What the Last 5 Presidencies Have In Common and How It Affects Every Manufacturer In America

Believe it or not, there is at least one thing that the last five Presidential Administrations have unilaterally supported, and we can feel quite certain the next will as well.

There is a little known tax credit that is part of Section 41 of the Internal Revenue Code, allowing manufacturers to reclaim a small portion of their annual payroll simply by performing activities manufacturing companies are already doing as part of daily operations.

This credit may be the only thing both sides of the aisle can actually agree on.   It has bipartisan support in both houses, backing of the Obama Administration, and has been renewed by every single Presidential Administration over the last 32 years.  How can there be such a disconnect between what may be the only thing the last five presidencies have in common?

A lot of the confusion is in the name.  Many manufacturers don’t believe they do “R&D” because they don’t have a traditional R&D department.  The IRS definition of R&D is quite different than yours or mine.    It often includes activities such as:

  • Manufacturing
  • Fabrication
  • Engineering
  • New Product & Process Development
  • Developing New Concepts or Technologies
  • Design – Layout, Schematics, AutoCAD
  • Prototyping or Modeling
  • Testing / Quality Assurance:  ISA 900X, UL, Sigma Six, etc.
  • Integration of new machinery (CNC, SLA, SLE, etc.) into existing processing
  • Software Development or Improvement
  • Automating or Streamlining Internal Processes
  • Developing Tools, Molds, Dies
  • Developing or Applying for Patents

Just to name a few…….

Only the folks in Washington DC could take unilateral support and turn it into unilateral confusion.

Since 2004 Growth Management Group has been educating and assisting Manufacturers and other Commercial Property Owners on their rights to programs buried deep within the tax code.   To date we’ve assisted small and mid sized companies discover over $300M in benefit.   Contact us for a comprehensive review.

$14B Available in Manufacturing Tax Credits

$14B Available in Manufacturing Tax Credits

There is a new bill that would put $14B in tax credits back into the pockets of manufacturers.  What makes this bill unique amongst its predecessors is that manufacturers don’t have to wait around for this one to pass through its bureaucratic channels (or stall out in a constant state of delay and confusion).

Manufacturers can take advantage of this program before it passes.  This is because a largely unknown version of the program already exists called the R&D Tax Credit.  A temporary version is in place through the end of 2013 as part of the American Taxpayer Relief Act of 2012.  So, manufacturers can actually begin receiving funds this year based on previous years activities.

5 Reasons Manufacturers are not taking advantage of the current version of this credit:

  • They don’t understand the IRS definition of R&D (see article:  R&D I don’t think we do that!)
  • They believe their companies are too small
  • They believe the benefit won’t outweigh the work
  • They believe they have to change the way they operate in order to qualify
  • They believe that the credit is not being renewed

Not only will this credit most likely be renewed, but congress has continually made it easier to qualify and expanded the eligibility to include not only the Fortune 1000 but also small to mid sized firms who can utilize the credit to significantly affect their bottom line.

When working with manufacturers we ask two questions to determine qualification:

  1. Are you expecting to be profitable this year, or were you profitable in any of the last 4 years?
  2. Is your annual payroll for any of these years in excess of $1 million?

Since 2004 Growth Management Group has been educating and assisting Manufacturers and other Commercial Property Owners on their rights to programs buried deep within the tax code.  To date, we’ve assisted small and mid sized companies discover over $300M in benefit.  Contact us for a comprehensive review.

 

 

The #1 Lie About Cost Segregation

Cost Segregation on Older Buildings?

It is impossible for me to calculate the number of calls I’ve had with building owners and CPAs on the subject of Cost Segregation. Working some numbers in my head (ok, on my calculator), the number is likely well over 10,000. Out of all those calls there is one particular item that continues to rear its ugly, uninformed head and I can no longer stay silent. I must respond… with vigor!

The “item” in question comes in the form of the following quote, which I’ve heard too often to count:

“You can only do Cost Segregation on a new building or new renovation.”

I have no idea where this rumor started. I hear it weekly and now I am blogging in rebuttal.

First, I will say an unequivocal “Yes”, it is beneficial to have a Cost Segregation study done when you purchase/construct/renovate a new building. In fact, anyone constructing or renovating a commercial property should have a study completed. However, the true power of Cost Segregation is displayed on buildings that are not new!

“But, you can only do Cost Segregation on a new building or new renovation”.

To officially rebut this statement, I will go straight to the source. The first sentence in the IRS Cost Segregation Audit Techniques Guide – Chapter 6.2 reads:

[box style=”2″][googlefont font=”Sanchez” size=”16px”]”A taxpayer may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years”. *[/googlefont][/box]

Not only “may” a taxpayer do this but over 75% of our projects are older properties. In the industry we call this the “Catch Up” method, and it can produce powerful results.

Here is an example:

Mr. Client acquires a commercial property for $3,500,000 five years ago and never completed a Cost Segregation Study.

Despite rumors to the contrary, Mr. Client recognizes he may now have an opportunity to benefit from a study (maybe he read this blog post).

Mr. Client hires an expert (GMG for example), who identifies 20% ($700,000) of components that should have been allocated to 5-year life instead of 39 years. Mr. Client jumps for joy when he realizes the IRS will allow him to “catch up” $700,000 of missed accelerated depreciation on his next tax return!

Why doesn’t every building owner and CPA know this?

The answer is simple; it is not their area of expertise. Although some building owners and CPAs have substantial experience with Cost Segregation, most do not. There is a dearth of true educators in this field, which unfortunately leads to much misinformation. These factors have caused countless thousands of building owners to miss out on this powerful tax savings strategy.

All is not lost!

If you own a building and have not had a Cost Segregation study performed, you have not missed the boat. Hundreds of thousands, or even millions, of dollars in tax savings may be available to you. Now that you are aware, let’s see how much you qualify for!  Contact Us today for more information.

* Full Link: http://www.irs.gov/Businesses/Cost-Segregation-ATG-Chapter-6-2-Change-in-Accounting-Method

2012 Tax Incentives for Manufacturers

The U.S.’s tax system is uncompetitive and makes it difficult for manufacturers to stay competitive.  Currently the United States has the number 1 Corporate Tax Rate.  However, tax incentives and credits have been put in place that allow manufacturers to reinvest, create and retain jobs to become more competitive.

The National Association of Manufacturers advocates strongly on behalf of the manufacturing industry nationwide to renew and extend tax credits that directly affect your industry.  According to their recent Statement to the Subcommittee on Select Revenue Measures dated June 8, 2012, “Renewing the tax extenders will provide a bridge of certainty and predictability for manufacturers.”

On Friday, August 3, 2012 the Senate Finance Committee approved the Family and Business Tax Cut Certainty Act.  This act extends more than 40 programs including the R&D tax credit and the WOTC tax credit through 2013.

The U.S. offers some of the world’s richest tax incentives, but chances are your organization is not taking advantage of them and getting the cash you deserve.   Working with an established cost recovery firm with it’s staff of engineers and attorneys specializing in tax and IP will maximize the credits you qualify for and, most importantly, provide a defense for those credits.

“R&D, I don’t think we do that!”

If, when you hear R&D, you think of people in lab coats tinkering with chemicals, ultra high tech industries and Fortune 500 companies, you are not alone.  However, things have changed!

In 2001 the IRS changed the definition of R&D and the changes were so broad that it virtually encompasses all manufacturing or technology organization in some way.

Why is this?  It’s because, by and large what do manufacturing companies do?  They design new products, improve existing products, come up with new processes, or make improvements to existing processes used to make products.  Most of these organizations don’t have an R&D department and probably don’t consider that what they are doing is “R&D”.  They are making these improvements and changes because they MUST stay competitive and yet, as the government sees it, “R&D” is exactly what they are doing.

Here are some of the everyday activities that would qualify for the credit:

  • Designing the process to fabricate the metal to reduce shrinkage and increase its quality
  • Programming CNC machines
  • 3D CAD Engineering with programs like SolidWorks
  • Developing and testing of prototypes
  • Quality assurance – First-piece quality inspections
  • Designing and developing of specialty tooling and fixtures
  • Considering alternative metals to develop the product
  • Considering different metal thicknesses
  • Developing engineering drawings
  • Developing weld procedures
  • Bending of metal (e.g. sheet metal) has to consider the stressing and stretching
  • Considering strength of final product for application (meets specifications)

So, the next obvious question is…”How do We get some money?”  The IRS allows companies to go back three open tax years to take advantage of the credits they may have missed.  (Nice of them isn’t it?)  Just 120 days after submitting the amended returns, you can get cash in your pocket.  Additionally, you can take credits for current and future years if you continue to perform activities that qualify for this credit.

To find out if your organization would qualify ask yourself a few questions:

  1. Are you expecting to be profitable this year, or were you profitable in any of the last 4 years?
  2. Is your average annual payroll for these years in excess of $1 million?
  3. Is your company structure a C Corp, or an S Corp/Partnership?

If you answered yes to all of these items then you definitely need to have an R&D Tax Consulting firm take a look at your organization.    You could potentially have a five-figure credit, even higher credits are available for organizations with higher payrolls.