New tax break accounted for as deduction says FASB

California CPA, Jan-Feb, 2005

Companies eligible for a tax cut for "qualified production activities" resulting from the American Jobs Creation Act of 2004 should use the benefit as a special deduction against taxable income over time, according to the FASB.

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The tax break cuts the top tax rate for American manufacturers engaged in "qualified production activities" by 3 percentage points, to 32 percent.

With the "special deduction" treatment outlined in Staff Position 109-a, companies are able to lower income subject to tax and reduce their reported income tax expenses and effective income tax rates in the periods when the benefits are taken.

Another provision from the act cuts the tax rate on profits repatriated from abroad for about one year, to 5.25 percent from 35 percent. FASB also has taken a staff position (109-b) to allow companies more time to assess the effects of the repatriation provision.

For more, visit www.fasb.org/fasb_staff_positions/prop_fsp_fas109-a.pdf and www.fasb.org/fasb_staff_positions/prop_fsp_fas109-b.pdf.>

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