Tax preparation is more of a perspective than it is a task. For small manufacturers especially, tax planning should be a continuous cycle. A close relationship with a business advisor can help ensure that you monitor your cash flow and taxable assets all year long.
According to the Economic Development Council, there are more than 2,800 manufacturing firms in the Tampa Bay area. If you’re among them, you need a tax professional who understands state and local tax requirements as they relate to small manufacturers. Here are eight things small manufacturers can do now to plan for next tax season.
1. Keep Track of Everything to Plan for Tax Season
Put an adequate tracking system in place for managing the cash flow of your small manufacturing business. Document everything to minimize the negative impact of poor tax preparation.
Here are several examples of what to document consistently:
- Income records
- Sales records
- Purchases such as machinery and office equipment
Small manufacturers could have a whole range of expenses such as legal, personnel, operational, office supplies, paper, advertising, hosting meals, business mileage, home office expenses, or business property insurance. Even more elaborate is the list of complications and complexities as you dig into the niche categories of individual manufacturing industry sectors.
For new businesses struggling to innovate, know that since the Tax Cut and Jobs Act in 2017, business owners can now purchase used equipment and still count it towards a tax credit.
2. Learn About the Research & Development Tax Credit
The Federal Research and Development Tax Credit allows manufacturing companies a credit of up to 13 percent of eligible spending for improved products and processes, which could also include software.
A small manufacturer could start with an evaluation of their current process to see if they qualify. If they haven’t qualified, they should consider researching the newest developments in process, technology, and materials to make sure they’re utilizing the most recent developments worthy of an R&D tax credit.
For example, recent advancements in the cybersecurity arena have incentivized R&D tax credits for companies developing and integrating cybersecurity technology. Other examples include production rates, parts per-hour, and reduced waste.
3. Understand Tax Breaks Related to COVID-19
H.R.6201, the Families First Coronavirus Response Act, provides refundable tax credits to employers who paid for sick time and family leave. Business owners may also be able to deduct their workers’ compensation premiums, liability insurance, group health care, business interruption insurance, and charitable giving for a certain period of the COVID-19 pandemic.
The CARES Act relieves the payroll tax on wages paid to $10,000 for employers struggling through the COVID-19 outbreak. Created to face recent concerns actively, the CARES Act also helps employers keep their employees paid, and differ further payments on payroll tax until 2021 and 2022, allowing business owners to manage expenses, and possibly even pivot to a more cardinal direction.
4. Take Advantage of Business Insurance Tax Credits
Business property insurance is a must in Florida to guard your business against losses from storms and floods, among other threats. Thankfully the IRS lets you deduct business property insurance premiums. Additionally, you may be able to deduct other protections deemed necessary, such as workers’ compensation insurance, liability insurance and data breach insurance. An experienced tax professional can help you assess which forms of insurance a small manufacturing business needs in the Tampa Bay area, and can ensure that you take advantage of all deductions.
5. Find the Right Professionals to Help Plan for Tax Season
Manufacturing facilities come in all different shapes and sizes, and so it can be complicated to find specific answers to all of the questions for your sector. Hiring the right team of tax professionals should ultimately serve to create more wealth by optimizing operational efficiency. When you seek a professional team of tax planners, look at it as an investment.
This investment in your business will help you avoid common mistakes. Missed opportunities to deduct from various expenses or maximize returns within your specific sector can have a substantial impact on your business.
Keeping industry local is the best way to tap into your most relevant resources. If your business is looking for a business advisor who will be with you all year— not just at tax time— reach out to FMA CPAs to start saving and managing your taxes responsibly, so you can keep growing.