Top Things that Manufacturing Companies Should Consider Before the Year Ends

Written by Stephen Schaaf, CPA and Allison Deskin, CPA on October 9, 2019

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As 2019 draws to an end, manufacturing companies are turning an eye to their business strategies for 2020. But, with so many factors that drive today’s operations, it can be hard to know what’s truly important—or even where to start—when it comes to your company’s year-end planning

That’s why we’ve assembled a list of important things that companies should consider as they approach the end of 2019 and why they matter for manufacturers.

Don’t navigate year-end planning alone. Connect with a Warren Averett advisor who can assist with mapping out your business strategies—from tax reform to technology.

Tax Reform for Manufacturing Companies

The Tax Cuts and Jobs Act was the most sweeping change to tax law in the last three decades. Businesses across the country have seen significant changes in the ways that they plan and strategize for their companies in light of tax reform, and manufacturing companies are certainly no exception.

Now, in the post-tax-reform world, qualifying taxpayers under the $25,000,000 gross receipts threshold are eligible to use the cash basis of accounting. Additionally, qualifying taxpayers under the threshold are not required to capitalize inventory costs, but instead can use an accounting method for inventories that either treats inventories as non-incidental materials and supplies or conforms to the financial accounting treatment of the taxpayer.

Other tax reform changes that can benefit manufacturers and distributors of all sizes include the Qualifying Business Income Deduction and Bonus Depreciation. Non-corporate taxpayers are eligible for a 20% deduction from qualifying business income. Taxpayers are also able to deduct 100% of qualifying equipment and other asset purchases on both new and used purchases.

Economic Nexus Considerations for Manufacturing Companies

Gone are the days when manufacturing companies only had to evaluate state tax laws for areas in which they had a physical location. With the rise of technology and the influence of the internet, having a presence in a state means much more than simply having a building, and changes to tax law have reflected that.

After the Supreme Court’s ruling in South Dakota v. Wayfair last year, many states are taking a closer look at their economic nexus statutes. More and more states are enacting economic nexus statutes and setting new thresholds for taxation, and it’s important to always have an up-to-date understanding of what those state laws are and how your company stacks up.

Changes to nexus statutes are expected to become even more frequent, but it’s also expected that the number of sales and use tax audits will increase as well, making it even more important that companies evaluate their position with each state’s threshold to ensure that they’re abiding by the tax laws that apply to them.

Tax Credits and Incentives for Manufacturing Companies

There are a number of federal tax credits and incentives to reward companies for certain activities—some of which you could already be doing. The Credit for Increasing Research Activities, Work Opportunity Tax Credit and Credit for Tax Paid on Fuels are just a few examples of some of the credits that may be available for manufacturing companies, and all of them can return tax savings and boost your company’s bottom line.

It’s also helpful to examine each state’s laws as a part of your year-end planning because different states offer different tax credits and incentives, many of which are available to manufacturers and distributors.

Technology Considerations for Manufacturing Companies

Technology is progressing, and manufacturing companies should be leveraging new advancements to progress with it. Including technology considerations in your company’s year-end planning can set you up to effectively consider what adopting new technology looks like for your company today and in the future, as well as the associated costs, advantages and other implications.

Investing in technology can take many forms for manufacturing companies, and it may look like incorporating robotics, automation or a number of other options into your company’s operations and processes.

The Internet of Things (IoT) is also an increasingly important consideration for manufacturing companies as it continues to advance in its capabilities and presence.

The IoT can provide many possibilities and opportunities for manufacturing companies, such as adding online connectivity to machines or connecting factory assets to enterprise resource planning (ERP) systems.

Investing in these technologies also makes it easier to collect and analyze data, and it can create substantial efficiencies for your company, so it’s important to intentionally consider how your manufacturing company can invest in and incorporate technology in 2020.

Cybersecurity for Manufacturing Companies

Along with the importance of adopting technology, there must be an emphasis placed on protecting your company in light of that technology.

The sobering truth is that if your business uses the internet for anything at all, you have at least some chance of experiencing some kind of cyber-attack or data breach. So while considering how your company will use technology, it’s important to also consider how you’ll protect your information and data.

There’s no time like the present to evaluate your company’s cybersecurity measures, and if it isn’t already, cybersecurity should be a consistent consideration in your company’s year-end planning.

Moving forward with Year-End Planning

With so many complex areas to consider for your company, approaching year-end planning can be overwhelming and intimidating. And, since every business has unique plans and goals, considerations will simply look different in different companies’ year-end planning strategies. Yet, it’s important to set aside intentional time in the last quarter of each year to consider what’s most important for your business in the year to come.

Connect with a Warren Averett advisor who can walk your manufacturing company through the year-end planning process and who can help you navigate business considerations from tax reform to technology.

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