It’s a good time for manufacturers to evaluate their tax situation and develop suitable measures for lowering their tax bill as the end of the year quickly approaches. Manufacturers can employ several tactics to reduce their responsibility, including budgeting carefully and scheduling business expenses. Although every case differs, the following general tax strategies may help your manufacturing company pay less this year.
Manufacturing property tax relief
Manufacturer property tax relief applies to personal property used in manufacturing. “Manufacturing process” refers to three broad activities, each exempt: manufacturing, research, and development. Only one of the categories must apply to a business for it to be exempt.
Each request will receive a fast review from the Department of Assessments and Taxation. If a production process or a significant step in a manufacturing process is involved, the business seeking the exemption must be the one using the property.
The tax exemption may also apply to leased property. Personal property used in manufacturing will no longer be subject to county and municipal property taxes once a manufacturing exemption has been granted to the extent permitted by the local governments.
Focus on targeted hiring.
Consider looking for employment seekers outside the typical sources in today’s competitive labor market. This may result in a tax credit. For instance, you can apply for the Work Opportunity Tax Credit (WOTC) if you hire workers from one of the designated “target” categories of disadvantaged people. The WOTC typically amounts to $2,400 per employee or 40% of the first $6,000 in first-year salary.
However, for some individuals, such as disabled veterans, it may be higher. The WOTC’s current expiration date is 2025. You can also get a special summertime credit if you hire teenagers who are 16- or 17 teenagers who live in an enterprise community or empowerment zone. The maximum credit per eligible worker is $1,200, or 40% of the first $3,000 in compensation.
If qualified expenses for research and experimentation increase, your manufacturing company may be eligible for a research tax credit, sometimes known as an “R&D” or “research and experimentation” credit. The credit is typically 20% of approved expenses over a basic level, although a 14% credit can replace this complicated computation.
Additionally, your company may be eligible for a deduction for specific research and development (R&D) expenses. However, under a recent tax code reform, R&D expenses have to be amortized over five years starting in 2022.
Perform little repairs
Do you have leaky faucets or damaged windows at your industrial facility? Currently, minor repairs are deductible as company costs. To improve your deduction, make sure to take care of these annoyances before the year is up.
The cost of capital upgrades, however, must be discounted over time. This holds, for instance, for significant initiatives like building a new wing to your property. The applicable regulations outline several safe harbor guidelines for separating upgrades from repairs.
Tax preparation is essential to keep your business solvent and compliant with the law. A tax expert may provide strategic decision-making advice to reduce your tax liability and ensure you are eligible for all allowable tax deductions, credits, and exemptions.