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IRS eases up on manufacturing-deduction rules

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Good news: The IRS has just expanded the activities qualifying for Section 199 “manufacturing” deductions and liberalized other provisions starting in the 2006 tax year.

The changes arrived in much-anticipated final IRS regulations released recently. (IRS Regulation-111578-06) For the most part, you’ll find the new regs are taxpayer- friendly. But don’t confuse tax breaks with simplicity: The new rules span more than 300 pages. Fortunately, you can find the nitty-gritty right here.

Now, let’s look at some of the key changes:

-Computer software. The final regs expand favorable tax treatment to online software sold by diskette or customer downloads. In January, the IRS had proposed treating only sales and downloads of computer software as a qualifying sale of a product. (RR, 1/9/06)
Caution: Receipts are necessary.

-Construction activities. You must construct the property to claim income from building construction. Previously,...(register to read more)

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