Global Tax Insights
5 Important Tax Saving Opportunities for ManufacturersApril 25, 2016
Balancing the daily issues and long term projects faced in the manufacturing world is not easy. Learn about five opportunities to save on taxes.
Along with tackling the skilled labor gap and implementing technological advancements, assessing the current tax environment tops the daily “to-do” list of every manufacturing executive in 2016. So, how exactly are manufacturers coping with the changing tax environment? CFOs should consider these five areas that will assist them in their corporate tax planning and provide meaningful tax saving opportunities.
- State and Local Tax Considerations- Regarding SALT, manufacturers have to be on their toes at all times, being that the laws change rather frequently. There are a few things that will possibly reduce the tax burden like sales tax and personal property tax exemptions for manufacturing machinery, sales and use tax exclusions for items not sold to end users, enterprise zone credits and renewable energy incentives.
- PATH Act of 2015- Download our recent eBook for information regarding the Protecting Americans from Tax Hikes Act of 2015. Luckily for manufacturing companies this year, the Section 179 and bonus depreciation tax breaks have been extended, making it easier for businesses to purchase property in 2016. In addition to this, the research and development (R&D) credit has been made permanent, allowing manufacturers to increase investments in research and innovation.
- Domestic Production Activities Deduction- Our blog, “Are Changes on the Way for the ‘Manufacturer’s Deduction’?” covers the domestic production activities deduction, sometimes called the ‘manufacturer’s deduction’ in greater detail. Essentially, this deduction allows for a deduction equaling 9% of qualified production activities income.
- Tangible Property Regulations- Capital expenses and repair and maintenance expenditures are essential costs of running a successful business, and a necessary evil required for growth. The IRS has issued final tangible property regulations (check out our blog) that govern whether certain expenditures for or related to tangible property must be capitalized or expensed.
- IC- DISC- The Interest Charge- Domestic International Sales Corporation, more commonly known as IC-DISC, allows a company to reduce the tax on its export income. Profits that are distributed by an IC-DISC in the form of a dividend are taxed at the qualified dividend rate rather than ordinary income tax rates (as much as 39.6% for S corporation or LLC owners). The IRS needs to approve the IC-DISC election since it is a separate legal entity. For companies who have earned significant income from exporting U.S. made products, this interest charge is especially valuable.
Concentration on long term success in the manufacturing industry is tough, especially when each day presents various challenges and demands. Ensuring that your business maintains a competitive edge rests largely on your long-term strategy, so it is crucial that you establish a balance between these more immediate tax obligations, and your long-term plans for growing your company.
Questions about manufacturing and taxes? Contact any member of our Tax Services Team.