Year-End Tax Planning for Manufacturers (Hint: Buying a Machine Isn’t a Tax Strategy) | Ep. 59

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Say your shop is going to make half a million dollars this year. You could buy a half-million-dollar machine before December 31 and take the deduction. I hear some version of that conversation every year, and I understand why. Writing a check for a machine you can put to work feels a whole lot better than writing one to the IRS. But what work are you going to put on that machine in January? And what does the payment do to your cash flow when the next opportunity comes along?

I sat down with Jon Hughes, Brad Boettcher, and Matt Winans from CLA to talk through the year-end decisions shop owners are facing right now. I brought up an acquisition we made at Hill and how it changed the way I’m looking at depreciation on the equipment we bought this year. It’s a good example of why two shops can buy the exact same machine and make two very different decisions about when to take the deduction.

Then we get into what happens when your CPA actually walks the floor. On our tour at Hill, we passed a machine where we were still testing the workholding and automation. To me, it was just one of the projects we had going that week. Jon saw something worth asking about. That conversation sent us into R&D credits, the inventory that’s been sitting in the back corner for years, and what to bring up with your CPA if you’re thinking about expanding the shop.

I’ve worked with CPAs for 30 years. I’ve waited until March to tell them what was going on, and I’ve never had one appreciate it. So I asked Jon, Brad, and Matt to get specific. If you’ve had a good year and you usually only talk to your CPA at tax time, what should you ask them now? And what do they need to know about your shop to give you a good answer?

What’s Covered in this Episode

• (0:00) Bring your CPA out for a shop tour
• (2:22) Meet Brad Botcher and Matt Winans of CLA
• (5:35) Manufacturing = the heartbeat of America
• (6:54) The most common shop tax “strategy”: buy a machine for the deduction
• (8:54) Depreciation is a timing difference, and you still pay tax when you sell
• (11:16) Manufacturers, build a steady pipeline with Factur. Get your free custom report at factormfg.com/chips
• (12:21) When federal bonus depreciation doesn’t carry through to your state
• (13:24) Tax depreciation on your books and what it does to your lender
• (17:05) Why you should plan two to four years out—not just this year
• (20:41) Tooling that keeps you cutting faster with Kennametal
• (21:28) Credits beat deductions: the R&D credit and solar on buildings
• (27:05) Pass-through entities and planning for the K-1 on your personal return
• (29:36) Inventory: dispose of obsolete stock to take the deduction
• (33:30) Inventory on your property tax bill and manufacturer exemptions
• (35:21) Your buyers have technical questions. Navu delivers accurate answers.
• (36:33) Roth conversions and avoiding income peaks and valleys
• (37:51) Self-rental buildings, cost segregation, and when to hold real estate in a separate LLC
• (40:53) Writing off the manufacturing portion of a new building
• (42:09) What to tell your CPA right now: projections, retirement plans, prepaying Q1 expenses

Resources Mentioned

• Manufacturers, build a steady pipeline with Factur and get a free custom report
• Cut faster, run longer, and get more out of every setup with Kennametal
• Give your website visitors reliable, accurate answers in real time with Navu
• Unlocking Tax Savings: Essential Strategies You Can Implement Immediately, Ep #10
• Maximizing Tax Savings: R&D Credits, Entity Selection, and the Work Opportunity Credit, Ep #11
• The Inventory Blind Spot: How LIFO Can Unlock Massive Tax Savings, Ep #36

Connect with John Hughes, Brad Boettcher, and Matt Winans

• CLA
• Connect with Jon on LinkedIn
• Connect with Brad on LinkedIn
• Connect with Matt on LinkedIn