Manufacturing is a highly valued industry in the United States.
That may be a factor why there are so many tax benefits for the industry.
Whatever the reason, the fact remains – there are a lot of very helpful tax benefits for manufacturers.
Not every tax benefit will be useful to every manufacturer, but there may be some you currently aren’t taking advantage of that could help your company’s profitability.
These tax benefits are highly lucrative and should be explored by every manufacturing business:
Section 179 Depreciation for Equipment Purchases: You may be able to immediately write-off any equipment purchases up to $500,000. Congress recently made this tax benefit permanent, allowing for far greater tax planning.
Bonus Depreciation for Equipment Purchases: This is for new equipment only (Section 179 can be for new or used), but it can add up to big savings. Bonus Depreciation allows you to write-off 50 percent of the asset cost in the first year, and then you can depreciate the other 50 percent over five-to-seven years. This benefit will be reduced to 40 percent in 2018 and to 30 percent in 2019. Important Update: The Tax Cuts and Jobs Act greatly enhanced equipment depreciation options. Check out this article for the new limits or contact us at firstname.lastname@example.org with questions.
R&D Tax Credit: The Research and Development Tax Credit - also known as the Research and Experimentation or R&E Tax Credit - can be very lucrative. The end result doesn’t even have to produce a new product, but you can earn tax credits for qualified expenses, including wages for qualified services, supplies used in R&D activities and up to 65% of contract services simply for experimenting with new processes or research. If you’re a Pennsylvania-based manufacturer, the state also offers R&D Tax Credits in addition to the federal benefit. You may be surprised at what qualifies, and it behooves businesses to look into this one.
Domestic Production Activities Deduction : DPAD allows businesses to take deductions on the production of property you manufacture, produce, grow or extract in whole or in significant part in the United States. The deduction is 9% of qualified production income, up to 50% of W-2 wages. A typical example is on $100,000 of qualified net income, your company could get a $9,000 deduction. Important Update: The Tax Cuts and Jobs Act eliminated DPAD. Please check out this page for news on Tax Reform changes or contact us at email@example.com with questions.
Corporate Net Income Tax Nexus: If you’re a C Corporation and your state has a high corporate net income tax rate, you could see some significant tax savings by expanding your sales into other states. Your blended tax rate may actually be lower. Every state’s nexus rules are different, but most allocate on three criteria: sales, payroll and property within the state. The more inroads, the greater chance you may have nexus in the state – having sales representatives, taking orders, signing contracts, storing inventory and renting facilities can all help in qualifying for tax benefits in states.
Cost Segregation Depreciation: Did you incur costs during the building and construction or purchase of your facility? You can likely accelerate some depreciation with a cost segregation study, an engineering-based analysis of the costs associated with the acquisition, construction, or renovation of a building.
International Tax Strategies : Do you do business internationally? You may be able to benefit from an IC-DISC, transfer pricing and foreign tax credits.
Like-Kind (1031) Exchanges: Taxes on the gains from the sale of certain types of assets can be deferred if the proceeds are used to purchase a similar asset within a specified period of time.
It pays to explore all possible avenues with your CPA. If you have not taken advantage of these various benefits or your CPA has not discussed them with you, please feel free to call our offices for a consultation.