Maximize Tax Savings While Growing Your Manufacturing Business

Key Takeaways:
  • Plan upgrades and expansions early to maintain steady cash flow and avoid surprises.
  • Use Section 179, bonus depreciation and cost segregation to increase tax savings and reinvest in growth.
  • Explore state-level incentives like HPIP, property tax exemptions and PEAK to keep expansion costs in check.

 

As a manufacturing business owner, you know that investing in your company’s future—whether through equipment upgrades or facility expansions—is key to staying competitive. But these investments can come with hefty price tags, making it crucial to plan strategically. The good news? Smart tax planning can help offset costs, improve cash flow and even open the door to additional financing opportunities. 

Here’s how thoughtful planning and the right strategies can help you make the most of your equipment upgrades and facility expansions. 

  1. Improved Cash Flow Management

One of the biggest challenges manufacturers face is managing cash flow while funding large purchases. By planning for upgrades and expansions ahead of time, you can: 

  • Factor these costs into your financial forecasts. 
  • Identify potential cash flow gaps before they occur. 
  • Secure financing or lines of credit early by working with your banker. 

Strategic tax planning ensures you’re not caught off guard financially and can move forward with confidence. 

  1. Significant Tax Savings on Equipment Purchases

Equipment upgrades are fundamental for maintaining operational efficiency and staying competitive, but they can also strain your budget. Tax planning can significantly offset these costs, freeing up cash for other priorities. Here are two powerful tools manufacturers can use: 

  • Section 179 Deduction: This allows manufacturers to deduct up to $1,220,000 in 2024 on new equipment purchases. By deducting these costs upfront, you reduce your taxable income and keep more money in your business. 
  • Bonus Depreciation: For purchases exceeding the Section 179 limit, bonus depreciation lets you accelerate deductions for additional equipment. However, this incentive is decreasing from 60% in 2024 to 40% in 2025, so timing your purchases is important. 

Both of these options provide flexibility, allowing you to maximize savings based on your unique tax situation. 

  1. Accelerated Depreciation for Facility Expansions

Facility expansions often come with a significant price tag, and the tax rules for these investments are different from equipment purchases. Commercial building costs must be depreciated over 39 years, but there’s a way to accelerate your tax savings: 

  • Cost Segregation Studies: A cost segregation study examines your building expenses and identifies assets that can be depreciated over shorter timeframes. This allows you to accelerate deductions, reducing your tax burden and improving your cash flow. 

If you’re planning a facility expansion, conducting a cost segregation study can provide significant tax advantages. 

  1. Access to State-Specific Tax Incentives

If your manufacturing business is based in Kansas, there are additional state-level programs that can help you reduce costs and boost your bottom line: 

  • First-Year Expensing Deduction: Kansas allows manufacturers who don’t take accelerated depreciation to deduct the cost of new equipment purchases in the first year, reducing state taxes. 
  • High Performance Incentive Program (HPIP): Qualifying manufacturers can claim tax credits for equipment purchases and facility expansions, significantly lowering their costs. 
  • Property Tax Exemptions: Expanding your facility often leads to higher property taxes, but Kansas offers exemptions for new buildings that can help ease this financial burden. 
  • PEAK Incentive: If your expansion includes hiring new employees, Kansas’s PEAK program provides payroll tax refunds for qualifying positions, helping offset labor costs. 

These programs are designed to make growth more affordable for Kansas manufacturers, giving you the tools to reinvest in your business. 

  1. Better Financial Position for Future Growth

By taking advantage of tax savings, cash flow improvement and financing opportunities, your business will be better positioned for long-term growth. Strategic tax planning helps you: 

  • Free up cash to reinvest in operations. 
  • Reduce the financial burden of large purchases. 
  • Build a stronger foundation for future expansions. 

Whether it’s upgrading equipment to improve efficiency or expanding your facilities to meet demand, strategic planning ensures you can grow sustainably while keeping your financial goals on track. 

Ready to Save? 

Major investments like equipment upgrades and facility expansions can be intimidating, but they don’t have to be. By planning strategically, you can take advantage of tax savings and financial incentives to make these projects more affordable and less stressful. 

The key is timing and preparation. Whether you’re exploring your eligibility for Section 179 deductions, considering a cost segregation study or applying for state-specific incentives, our manufacturing team can help. 

Let us show you how to turn your next big purchase into a tax-saving opportunity. Contact us today to start building a tax strategy tailored to your manufacturing business.