In today’s manufacturing environment, driving profit is a tall order.
But smart strategies exist, and your peers and competitors could already be leveraging them. Don’t let the other guys wield a financial advantage. Become familiar with these 10 profit boosting ideas that every manufacturer should explore, understand and consider.
1. Wisely employ the Ohio sales and use tax exemption
Ohio manufacturers are allowed to purchase tangible personal property to be used or consumed in the manufacturing process, free from the Ohio sales and use tax. This opportunity can be a true profit booster when properly applied. But its misuse can backfire, incurring costly penalties. Here’s what you need to know to protect yourself from a time-consuming, and profit-damaging audit.
2. Capitalize on your TPR compliance
The IRS’s final tangible property (aka “repair”) regulations clarify the treatment of tangible property expenses. The guidance directs businesses when they can deduct expenses in the current year, and, alternatively, when they have to capitalize those expenses and spread the deduction out over several years. These new regulations provide an opportunity for accelerated tax deductions in the short term and increased tax savings in the long term – making it a true profit booster for your business. You’ll want to find out:
- How the final tangible property regulations impact manufacturers
- Ways the de minimis safe harbor election rule can be leveraged
- Details of how $500,000 in additional deductions were uncovered for one manufacturer
- How to create a tax efficient TPR compliance plan that boosts profits
- How to apply the regs – as explained in a clear but in-depth webinar
- If you can (and should) take advantage of the 3115 exception for small business
3. Establish an IC-DISC
An Interest Charge Domestic International Sales Corporation, or IC-DISC, is an exporting incentive for U.S. firms that can drastically boost your profitability, ROI and fiscal savings. Despite these benefits, too few organizations take advantage of – or maximize – this federal tax savings opportunity. This incentive is available to companies that export their own goods, as well as companies that manufacture a good that is part of, or included in, a product that is exported by others – and this is where many businesses miss out! Learning more about the IC-DISC can lead to more money in your pocket.
4. Change your entity structure
One way to be sure your business is properly positioned for tax – and therefore boosting profit – is to assess whether you are operating with an appropriate entity structure. Too many manufacturers have failed to take a good hard look at whether they should be S corps or C corps, and some are missing an opportunity to reduce their overall tax burden. Here’s what you need to know to evaluate this decision.
- C corporations and S corporations — what’s the difference?
- What to know about switching corporation status
- Certain tax rates may prompt your entity change
- S Corp owners: Do profits (and debts) belong to you, or your company?
5. Uncover hidden value with reverse due diligence
Ever wonder what the professional advisors on the buyer’s side of the table would tell their client about your business? Would they indicate your company is “a steal” because you’ve overlooked potential value? And wouldn’t this be information you wished someone had told you? To find the hidden value in your organization, hire professional valuators well before you are ready to sell. They can conduct “reverse due diligence,” – that’s buyer-like investigation that you do on your own company – to report your worth today, and how to make it more valuable tomorrow. Those changes will boost your profits when you eventually exit your business.
6. Grab your piece of the R&D tax credit
Odds are you’ve heard about it, wondered if your company could take advantage of it, and worried that your competitors are already benefitting from it: the R&D tax credit. Many manufacturers perform activities that qualify without realizing it. A tax incentive offered by the federal government and some states to promote innovation, it allows businesses to receive tax credits for expenses incurred for research and development to create a new product, advance product design, or improve production processes. The result is a lowered tax obligation, which translates to increased profit.
- Understanding the R&D Tax Credit: a recorded webinar
- How available is the R&D tax credit? More than you might realize
- What qualifies as research, and how do I document it?
- Which qualifying activity is overlooked by many businesses?
- How the credit adds value to your business
- Know the process: an R&D study has three stages
7. Make sure your company’s benefits benefit YOU
From healthcare coverage to retirement plans, manufacturers have numerous choices to make about employee benefit plans, and the ACA influences your discernment. These decisions impact your bottom line, so you strive to structure your benefit offerings wisely. But two opportunities often get overlooked, and therefore offer a potential for profit boosting. First, retirement plans should be designed to an owner’s advantage…but many are not. Second, in an M&A situation, analyzing the benefits offered – by both the buyer and the seller – will help you finalize the deal in your favor. Learn more about both of these profit-boosting opportunities:
- Discover the best retirement plan for your business: a recorded webinar
- Reveal the benefits you may be missing from your current retirement plan
- Find out what happens if your retirement plan falls out of compliance
- The ACA made benefits an M&A issue: an infographic
- Structure your M&A deal with the ACA in mind: a white paper
8. Segregate to depreciate
As a manufacturer, you’ve made a significant investment in your organization by purchasing, constructing or upgrading property. But you may be overlooking a tax strategy that could help you benefit even more from these assets. Cost segregation studies separate real property into various depreciable categories, and allow taxpayers to depreciate property over much shorter than typical time periods. And by taking deductions sooner, you lower your current-year tax liability and free up more capital. That’s a true profit booster!
9. Claim what’s yours
The government has wrapped up a present and put your name on it: the Manufacturers’ Deduction. Also referred to as the Section 199 Deduction, its benefit is currently 9% of income from qualified production activities. But too many manufacturers fail to claim everything they are entitled to, or ignore this deduction all together, because it can be complex and intimidating to calculate and support. Don’t let this incentive go unclaimed! Chances are, Section 199 is a profit-boosting opportunity for you.
10. Strategically position yourself
Paying taxes can feel similar to negotiating the purchase of a car – you can’t help wondering if you could’ve paid less. From maximizing incentives to setting up the most tax efficient retirement plan, there seems to be rich opportunity to be better positioned for tax. But how can you possibly be smart and strategic about every tax decision so that you minimize your burden? Bring in a strategic tax advisor to evaluate your whole business picture, conduct the risk benefit analysis of various operational decisions, and recommend a comprehensive, tax-smart course of action. That’s a big-picture profit booster.
- Paying the lowest tax allowable by law
- How is strategic tax planning different from traditional tax planning?
- What is the strategic tax planning process?
- Strategic tax planning: Two companies’ success stories
*NOTE: Tax reform enacted in December 2017 has eliminated the Domestic Production Activities Deduction (DPAD or Section 199). If you have questions about how this may impact your business, please contact your CSH tax advisor.