Running a manufacturing business takes a lot of effort and investment, so it only makes sense to examine all opportunities to minimize your tax burden. But to do so, you need to know which tax incentives are worth considering. To help, here are five valuable tax incentives for manufacturing businesses to consider.
Research and Development (R&D) Tax Credit
Not only can you claim the R&D Tax Credit to reduce your federal tax burden, most states also offer this credit. And it's not just for the big companies, either. Small manufacturing companies with revenue of over $5M can often find claiming the credit very beneficial. You may not know this, but there are likely a number of activities you perform and expenses you pay every day that qualify for this credit. Those include:
- Sales Time (determining requirements, quoting, etc.)
- Design Meetings (collaboration among staff, etc.)
- Flat Blank Layouts (design modifications, etc.)
- Tool Making (design, build, tryout, etc.)
- Engineering Process (new equipment, shop redesign, etc.)
- Proof of Concept (process documentation, etc.)
- Trial Production Run (first run of a product, etc.)
- Quality Approval (PPAP, ISIR, etc.)
- Shipping (package design, etc.)
It's also important to note that manufacturing activities that improve an existing product or process may qualify for the tax credit, too.
Jobs Tax Credit
Manufacturers likely overlook the Jobs Tax Credit because they aren’t aware of the role their location plays in qualifying for it.
If your company is resides in certain locations, such as an enterprise or opportunity zone, or an underdeveloped census tract, you may qualify for a credit for the new jobs you create each year. The state in which you are located will provide the guidelines to be followed for this credit.
Retraining Tax Credits
If you train your employees to improve skills related to equipment, technology, processes or software, you can claim these expenses as a tax credit — outside instructor costs and materials, employee wages during training, and qualified travel costs.
Check with your State’s requirements to ensure your training qualifies for a Retraining Tax Credit. For example, if your company is located in Georgia, the Technical College System of Georgia is the source of approval for this tax credit.
Work Opportunity Tax Credit (WOTC)
If your company hires individuals who have consistently faced significant barriers to employment, you likely qualify for the Work Opportunity Tax Credit.
The target groups that qualify for WOTC include:
- Qualified IV-A recipient
- Qualified veteran
- Designated community resident (DCR)
- Vocational rehabilitation referral
- Summer youth employee
- Supplemental nutrition assistance program (SNAP) recipient
- Supplemental Social Security Income (SSI) recipient
- Long-term family assistance recipient
- Qualified long-term unemployment recipient (added when the PATH Act took effect)
You may claim either your business income tax liability or social security tax you owe for the Work Opportunity Tax Credit.
Since filing for these tax credits can be complex, you may want to talk with a tax professional to ensure your company’s activities qualify and you have the necessary documentation to file your claims.