Whether you agree with the tax cuts the government has passed or not, the fact is they are here to stay. But these cuts give way to some great reinvestment opportunities. Many companies across the nation will be getting greatly reduced tax bills and this leads to countless ways to invest those savings back into your company. Whether you need to buy a new machine, hire some new employees, or update your old computer systems, there has never been a better time.
Some of the highlights of the tax bill for manufacturers that we found were for a C Corporation, the rate is cut from 35% to 21%, and for pass-through businesses, it goes from roughly 40% down to approximately 30%.
Another is this capital expenditure at 100%. One thing that is interesting that was put into the bill is when you had the bonus depreciation, it was just for new equipment purchases. Now with this bill, the equipment can be new or used. It doesn’t have to be new anymore, just new to your company. The best part is the effective date is back to September 27, 2017. Any of the fourth-quarter 2017 purchases will be able to take advantage of that 100% expensing. For manufacturers, it does provide some certainty, at least for a five-year period, that they know what the rules are and they are able to take that 100% expensing. That does provide the ability to plan over the next several years.
Something else is the LIFO inventory method that some manufacturers use. Many manufacturers use LIFO when they have increasing prices over the years. LIFO provides a tax benefit for that. There was some discussion and speculation that as part of the tax reform the LIFO benefit could be taken out by this tax bill. It was not in the bill, so LIFO is still available for companies that have used that method. The other one is the R&D credit. Manufacturers that develop new products and processes can take advantage of the R&D credit that was retained by the bill. Those were two items that were favorable before the bill and were not changed by it.
Finally, they came up with a new tax credit that is initially going to be only for 2018 and 2019, a family leave credit. If a company has a family leave program or a sick leave program, if they pay their employees at least 50% of their regular wage, they can receive a tax credit for a portion of their wage when an employee is out on family leave or sick time. This would apply to C Corporations or pass-through businesses.
Of course, these tax effects will vary from business to business so we suggest you talk to your tax advisor to find out the true effect of the new tax bill on your company.
Now those were just a few of the highlights for manufacturers from the tax reform bill. Using those savings now to reinvest in your company will help it to continue to grow and continue to meet or exceed the competition. One of the best ways to do that is to add a new or upgrade an existing ERP software system. A new ERP system will help to streamline and increase efficiency across all company operations. In turn, saving your business even more money in the long run.
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