Congress will vote on the final tax bill this week. Here’s what small manufacturers and their employees need to know:
- The tax burden is lowered across the board.
The tax bill slashes rates across the board for individuals and pass-through companies that file at individual rates. That helps manufacturers regardless of what state they happen to be in. Small businesses will see hundreds of billions of dollars in tax relief.
- The bill provides tax relief specifically to small manufacturers.
Small manufacturers can deduct 20 percent of business income from their taxes. Service businesses lose this deduction above $157,500 ($315,000 for couples), but manufacturers do not! (There’s been some confusion here.)
While high-income taxpayers will face limits on their ability to claim the deduction, if you pay your employees well and invest heavily in equipment—as most manufacturers do—you get the best possible answer under the tax bill.
- The bill gives immediate benefits for buying tools and upgrading equipment.
We can immediately write off purchases of tools for our workers. This now includes used tools, a change from current law. These purchases are important for our ability to compete, including with overseas companies.
- The research and development (R&D) tax credit will continue, even though it was at risk.
For a while, we thought R&D incentives for manufacturers would be axed. However, thanks in part to the NAM’s work, the final bill includes R&D tax credits that help manufacturers make innovative new products.
- The estate tax threshold is doubled, a relief for family-owned businesses.
The bill doubles the amount of money exempt from the estate tax, from about $5.5 million to about $11 million. This is a big deal for passing businesses on to the next generation.
- The bill sets up a “territorial” tax system, encouraging more investment in the United States.
Under the current system, businesses that earned money overseas were taxed there and then taxed again by the U.S. government when bringing money home to invest in America. Now, that double taxation will end. This will mean more investment, more jobs and more customers in the United States.
- Manufacturing workers and families will see tax cuts.
The tax bill lowers tax rates for individuals and families, meaning manufacturing workers stand to see larger paychecks once the law goes into effect. And many hardworking families will benefit from the bill’s doubling of the child tax credit, from $1,000 to $2,000.
- The standard deduction for individuals is nearly doubled—another win for workers and families.
For individuals, the standard deduction goes up to $12,000 from $6,350, and for married couples, it is increased to $24,000 from $12,700. (However, the bill does eliminate the personal exemption.) The larger standard deduction will mean tax savings—and may save many families from the hassle of itemizing.
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- Eight Things for Small Manufacturers to Know About the Tax Bill - December 18, 2017