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Can I earn new manufacturing write-off?

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in Small Business Tax

Q: In a recent issue, you said that both engineering and architectural services qualify as "manufacturers" for purposes of the new manufacturing deduction (see 3/21/05 issue). Can you tell me if a laboratory that does tests (for physicians) created from raw materials qualifies for the deduction as this type of service? J.V.M., Md.

A: Possibly, but we can't give you a definitive answer just yet. While it's unlikely that your service would be treated as an architectural service, it may qualify as "domestic production" for this purpose. The deduction includes "any lease, rental, license, sale exchange or other disposition of qualifying production property that was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States." The good news: The IRS is taking a liberal approach to applying these rules. In the coming months, expect the IRS to release more details on the type of "manufacturing" activities eligible for the new deduction.

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