Tax season isn’t a time most manufacturers look forward to. However, with the right strategies, if you’re a manufacturer, you can cut down tax bills, avoid unnecessary headaches, and maybe score a fairly good tax refund. Knowing how to play the tax game can keep more money in your pocket. So, if you want to make the season less painful and, in turn, more profitable, see the 7 manufacturers’ tax tips we have put together for you below.
1. Grab Every Tax Credit You Can
If there’s free money on the table, why not take it? One of the best manufacturers’ tax tips is making full use of tax credits designed to lower your tax bill—the R&D tax credit, for instance, rewards companies for developing new products or improving processes.
There are also credits for going green and even hiring certain employees. Don’t assume you don’t qualify. Work with a tax professional to investigate every tax credit available, as missing out on these is like leaving cash on the table.
2. Know Your Income Tax Rate
Your income tax rate is not just some number to glance at once a year. It directly affects how much of your hard-earned money you take home. Small to medium-sized manufacturers may fall into different tax brackets depending on their earnings, affecting their tax liability. The good thing is that a smart accountant can help you lower your effective income tax rate and keep your business from paying more than it should.
3. Sort Out Your Cost Allocation
A common tax mistake is throwing all your expenses into one big pile and hoping for the best. Cost allocation matters because it determines what you can deduct and how much tax you owe.
Direct costs like materials and labor are easy to track, but indirect costs like factory maintenance or utilities can get tricky. If you don’t allocate properly, you could be overpaying on taxes (or, worse, triggering an audit).
4. Don’t Get Burned by Double Taxation
If your business is structured as a corporation, double taxation can be a real problem. That means your company pays corporate income tax on profits, and then you personally pay taxes again when those profits are distributed as dividends. It can be really painful. One way to dodge this is by structuring your business as an S corporation or LLC, which allows profits to pass directly to owners without getting taxed twice.
5. Plan for Bigger Tax Refund
Who doesn’t love a good tax refund? Yet, many manufacturers miss out on money they’re owed simply because they don’t plan ahead. Overpayments, unused deductions, and carryforward losses can all contribute to a refund, but only if you know where to look.
You might qualify for a refund-worthy tax credit if you recently invested in equipment, energy-efficient upgrades, or certain workforce programs. The key is keeping detailed records throughout the year so you’re ready to claim every dollar back when tax season comes.
6. Stay Ahead of Tax Season
When you start dusting your tax document when it’s already tax season, you might make some costly mistakes. The best way to handle tax season is to stay prepared all year. Keep track of expenses, payroll, and equipment purchases as you go. Set aside time each quarter to review your tax obligations and ensure everything is in order. Staying organized will save you from last-minute panic and help you avoid missing valuable tax deductions.
7. Hire a Tax Professional. It’s Worth It
Taxes for manufacturers aren’t simple. Between industry-specific deductions, shifting regulations, and all the little details that can make or break your tax bill, it’s easy to miss something important.
That’s where a tax professional comes in. They’ll help you navigate tricky tax laws, optimize deductions, and make sure you’re not paying a cent more than you have to. In addition, regular tax planning meetings can help you avoid surprises when it’s time to file.
Keep More of Your Money
Taxes might never be fun, but they don’t have to be painful or stressful either. When you follow through with these manufacturers’ tax tips, you can reduce your tax burden, avoid costly mistakes, and even boost your refund. A little planning goes a long way, regardless of the details of what you’re doing. So, don’t just survive tax season; take control of it and make it work for your business.
