Manufacturers face a fast-changing and capital-intensive landscape, making it essential to take full advantage of the tax-saving opportunities available in 2025. From equipment write-offs and R&D credits to clean energy incentives, current tax policy supports domestic production, innovation, and long-term sustainability. Here’s how manufacturers can turn these policies into meaningful financial gains.
Maximize Immediate Deductions with Section 179
Section 179 remains one of the most powerful tools in the tax code for manufacturers. In 2025, businesses can deduct up to $1.25 million in qualifying equipment purchases, including computer numerical control (CNC) machines, forklifts, and off-the-shelf software. This immediate deduction significantly lowers taxable income and improves cash flow, giving companies more room to reinvest.
Eligible property includes new and used machinery, business vehicles over 6,000 pounds, and improvements to nonresidential buildings such as HVAC and security systems. However, to take advantage of this, the equipment must be installed and operational by December 31, 2025. The deduction begins to phase out once total equipment purchases exceed $3.13 million, making it a prime benefit for small and mid-sized manufacturers.
Layer on Bonus Depreciation
While bonus depreciation could be phased out, it still offers savings in 2025, allowing businesses to deduct 40% of the cost of qualifying new or used assets that aren’t fully covered under Section 179. For example, if a manufacturer buys $1.5 million in equipment, it could deduct $1.25 million through Section 179 and take bonus depreciation on the remaining $250,000, generating an additional $100,000 in deductions. Together, these provisions allow for up to 90% of equipment costs to be written off in the first year.
Don’t Overlook R&D Tax Credits
Many manufacturers mistakenly assume R&D credits are only for tech labs or product engineers. Manufacturers that improve products, develop prototypes, or create new processes can qualify. Programming time, prototyping, fixturing, and even setup may count—provided time and expenses are properly tracked and documented.
R&D credits reduce tax liability dollar-for-dollar and are particularly valuable now that research expenses must be amortized under Section 174. While this change spreads out deductions, the R&D credit remains an immediate offset, making it a key component of long-term planning.
Hire Strategically with the Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) offers up to $9,600 per eligible new hire from targeted groups such as veterans, long-term unemployed, or individuals receiving government assistance. Manufacturers facing labor shortages may benefit from casting a wider hiring net while reducing federal tax liability per employee. This often-overlooked incentive is beneficial for companies investing in workforce development.
Explore Energy and Technology Credits
The Inflation Reduction Act (IRA) ushered in a wave of tax incentives for manufacturers investing in clean energy and advanced technology. Two key credits stand out:
- The Advanced Manufacturing Production Credit rewards manufacturers for producing specific components, like batteries, solar panels, and critical minerals, within the U.S. Unlike other credits, it doesn’t require pre-approval and can be monetized through direct payments or transfers.
- The Advanced Energy Project Credit provides up to a 30% investment tax credit for re-equipping, expanding, or building facilities focused on clean energy production. Because funding is limited and demand is high, manufacturers should be prepared for a competitive application process through the Department of Energy.
Both credits support companies expanding into sustainable manufacturing. However, firms cannot claim both credits for the same facility, so strategic planning is essential.
Future-Proof Your Structure and Strategy
With portions of the Tax Cuts and Jobs Act (TCJA) set to expire after 2025, manufacturers should monitor potential changes to tax rates, the qualified business income deduction, and estate planning thresholds. Additionally, entity structure is key in tax exposure and long-term goals. Whether organized as a C-corporation, S-corporation, or partnership, manufacturers should regularly evaluate their structure in light of tax implications and growth plans.
Plan Now
Manufacturers have until year-end to make qualifying purchases and put them into service to leverage Section 179, bonus depreciation, and other incentives. Don’t wait until Q4 when supply chains get tight. Review your capital needs, assess your eligibility for R&D and energy credits, and map out a purchasing plan that maximizes deductions and credits under current law. Combining these incentives can unlock significant savings and fuel your next growth phase. Thoughtful planning today can pay off in real dollars tomorrow. To explore the best approach for your business, contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com.
Author Robert Radzinski, CPA, Manager, manages tax compliance for businesses and high net worth individuals. Rob can be contacted at 610-687-1600 or rradzinski@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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