4Thought Blog

Is your manufacturing company on the cutting edge? It's important to keep pace with the competition, especially if you're trying to carve out a niche in a new marketplace.

Fortunately, federal tax law allows manufacturers to claim a generous tax credit for qualified research expenses. The credit generally offsets income tax liability on a dollar-for-dollar basis.

Now there's some extra tax incentive: The Inflation Reduction Act (IRA) expands the ability of qualified small businesses to use research credits to offset federal payroll tax instead of income tax.

The Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS Act) recently became law as part of the CHIPS and Science Act of 2022.

Among other things, the new law provides more than $52 billion in funding for manufacturers to produce semiconductors, also known as chips. It also includes a temporary 25% tax credit for investments in chip manufacturing.

While the incentives themselves are narrowly targeted, the expansion of semiconductor production should benefit a wide range of manufacturers. Here's a summary of the two main components of the CHIPS Act: the funding initiatives and the new manufacturing tax credit.

Does your manufacturing company need to acquire new equipment to meet demand? Fortunately, there's a tax break that can help: the Section 179 deduction.

 It allows you to deduct this year the cost of qualifying new or used property you purchase. Your deduction can even exceed the amount you provided from your own funds to make the purchase.

However, there are two limits on Sec. 179 deductions that might stand in your way. So it's important to understand all the relevant rules.

The labor shortage in the manufacturing sector has been well documented. As of October 2021, the number of workers in the industry had declined by almost 400,000 from pre-pandemic levels. According to the National Association of Manufacturers, nearly 2.1 million manufacturing jobs could be open by 2030.

Will this worker shortage adversely affect your manufacturing company, or has it already done so? You don't have to sit idly by while the labor gap continues to grow. One way to entice more workers is by offering an impressive slate of employee benefits. Doing so can help you attract and retain top talent.

If your manufacturing company is like many others in the industry, you're having difficulty finding top-notch new hires to expand your workforce as well as to replace employees who are retiring or quitting. At the same time, you'd like to reduce your tax liability for 2022.

Practical solution: Kill two birds with one stone by hiring workers from certain "target" groups. This move can help close the skilled labor gap, and you may qualify for a tax credit — the Work Opportunity Tax Credit (WOTC) — at the same time. What's more, if your company employs certain teenagers during the next few months, it may be in line for a special "summertime" version of the WOTC.

As the midpoint of the year fast approaches, it's a good time for manufacturers to assess their tax status and plan appropriate strategies for reducing their 2022 tax liability.

 Although each situation is unique, here are seven general tax moves that could potentially lighten your manufacturing company's tax load this year.

For decades, owners of small to midsize manufacturing companies have opted for the S corporation form of ownership, rather than being subject to the double taxation of C corporations.

However, in recent years the limited liability company (LLC) has become another popular alternative. Let's compare these two business structures.

It's rare a manufacturer who doesn't want to improve profits and boost cash flow by reducing the carrying cost of inventory.

Here are two cutting-edge ways to help you manage inventory more efficiently.

First-year bonus depreciation typically creates a powerful tax incentive for eligible manufacturers to purchase qualified property needed for business reasons. These tax write-offs can benefit a manufacturer's cash flow, but claiming them isn't always the best decision.

In some cases, there are advantages to following the regular depreciation rules. However, if your manufacturing company wants to take full advantage of the bonus depreciation, this is the year to do so.

Last year was another tumultuous one in the manufacturing sector. The continued impact of the COVID-19 pandemic, unprecedented disruptions to the supply chain and a competitive business environment were all contributing factors, despite a general rebound in the economy.

But manufacturers are facing another major obstacle in 2022 — the ever-growing skills gap in the workforce. A possible solution to this problem is to "upskill" your workforce.