CLIENT ALERT

For additional information contact:
Lorna E. Smith
Marketing Coordinator
lsmith@untracht.com

February 16, 2007

Reducing The Effective Tax Rate By Using The Manufacturer’s Deduction

This relatively new deduction for domestic production activities, most often referred to as the manufacturer’ deduction, can yield significant tax savings by generally any type of operating entity. The maximization of the benefit is a direct function of understanding the mechanics of the deduction’s computation as it relates to a specific industry or trade but also entails and requires substantial planning for individual clients with unique operational characteristics.

Although the current relief represents a deduction of 3% of the lesser of qualified production activities income or taxable income (adjusted gross income for individuals), the deduction will be 6% in 2007 through 2009, and 9% when fully phased-in for the 2010 tax year.

The deduction is further restricted to 50% of W-2 wages paid by the taxpayer during the calendar year, which is geared to benefit businesses utilizing employees as opposed to independent contractors.

The term “manufacturers’ deduction” is misleading as it is available for businesses engaged in activities such as construction, engineering, architectural services, computer software development and agricultural processing. Qualifying activities can include any lease, rental, license, or sale of manufactured qualifying property produced, grown, or extracted at least in significant part in the United States.

Planning should start sooner rather than later in determining how to best maximize this benefit and how to capture the necessary information that will be necessary for its ultimate calculation. We at Untracht Early LLC are eager to assist you in assuring that this benefit is used to your full advantage.