Manufacturing and machine tool clients can benefit from a number of specialty tax strategies, from claiming an R&D tax credit, to utilizing an IC-DISC to reduce tax liability, to realizing valuable economic development credits and incentives.
The team at McGuire Sponsel has experience working with manufacturing clients across all practice lines, giving us unique perspective on the best tax strategies to employ to benefit our clients.
R&D Tax Credits
Manufacturing and machine tool clients often qualify for Research and Development (R&D) Tax Credits through internal optimization or new product development for customers. Our R&D tax credit team spends time learning the daily operations of clients as they optimize or develop new products or processes. This allows us to build sustainable yet maximized benefits that withstand the highest levels or IRS scrutiny.
Contract manufacturers and machine tool companies are approached by other companies and asked to produce a component, part, or product. A contractor manufacturer generally provides feedback to their customer regarding the design. This feedback is provided to optimize the part designed and simplify the manufacturing process, known as design for manufacture. McGuire Sponsel works with a large volume of “tool and dye” shops that are great candidates to claim the R&D Tax Credit.
Development can also occur internally when a company identifies the need to develop a new process for an existing product. There are many things to consider when conceptualizing a product such as determining cycle time, discovering the optimal sequence of operations, and meeting internal and external tolerances and specifications. Our team has experienced more internal development as technology is integrated into production lines. Time is spent in configuring the machines and fine-tuning the process to create an efficient production cycle.
If your clients are currently experiencing any of the following, they could qualify for an R&D Tax Credit study:
– Internal optimization or new product development for customers
– New process development for existing product manufacturing
R&D Success Story: Automotive Parts
A Tier I automotive part manufacturer engaged McGuire Sponsel to conduct a four-year R&D Credit study. After on-site fieldwork and extensive analysis of financial data and project documentation, McGuire Sponsel was able to calculate federal tax credits totaling more than $570k for the four-year period in addition to $78k in state credits. One of these tax years was audited by the IRS which ultimately resulted in no change to the credits claimed.
Location Advisory
Due to the creation of new products, the specialized skills required by employees, and the technical machinery utilized in the process, our Location Advisory experts can help secure valuable incentives for manufacturing companies when brought in prior to a growth project taking place.
If your client or business is considering new equipment, building expansion/relocation, or the addition of skilled workers, we should discuss timing and potential Location Advisory opportunities.
Location Advisory Success Story: Nice-Pak Products
Nice-Pak, a manufacturer of sanitary wet wipes and other hygiene items, engaged McGuire Sponsel’s Location Advisory team to help choose sites for two new facilities and invest in 400 new employees. After vetting locations in each state, we helped them select sites in Indiana and Arkansas, where the company could access significant economic development incentives and grow the business. We helped the company realize over $40MM in new job creation and property tax benefits with their new facilities.
Cost Segregation
Cost segregation studies are used to accelerate depreciation deductions on equipment and renovated or newly built facilities to reduce tax burden and improve cash flow. If the following qualifications could indicate a Fixed Asset opportunity for your clients’ business:
– Acquisition or new build in excess of $750k
– Companies with large fixed asset schedules
– Companies that renovate or make repairs frequently
Cost Segregation Success Story: Boat Manufacturer
McGuire Sponsel was referred to a boat manufacturer by a CPA firm in Tennessee. The boat manufacturer had just completed a remodel and addition for their manufacturing facility totaling $3.6 million. This facility is located just outside of Nashville, TN. McGuire Sponsel was able to reclassify assets so they depreciate over 15, 7, and 5 years instead of all assets being placed into 39 year depreciable life.
We were able to reclassify 53 percent of the total depreciable property. The accelerated depreciation deductions resulted in an increased cash flow of $502,408 over the first year and a net present value of $300,710 over the life of the investment.
Global Business Services
Our team developed and maintains a proprietary Transaction-by-Transaction calculation in line with the Treasury regulation to truly maximize a calculation. We also assist with appropriate studies and international compliance to avoid strict penalties.
If your clients are planning or currently experiencing any of the following, we should discuss potential Global Business opportunities such as IC-DISC and transfer pricing:
– U.S.-based manufacturers who export their goods
– Manufacturing entity with business strategy and logistics that involve controlled foreign corporations
Global Business Success Story: Lumber/Hardwood Manufacturer
McGuire Sponsel worked with a lumber and hardwood manufacturer, utilizing a Transaction-by-Transaction (TxT) calculation to increase IC-DISC commission of $1.2MM, saving shareholders $138,000.