As the year comes to a close, manufacturers have the opportunity to implement year-end tax planning strategies to help reduce their 2024 tax liability. Several provisions of the Tax Cuts and Jobs Act (TCJA) still offer significant tax benefits, and new tax-saving opportunities from the Inflation Reduction Act (IRA) and the CHIPS Act also provide additional strategies to consider before the year ends. 
Section 179 Expensing Election
The TCJA has provided manufacturers with enhanced depreciation benefits for years. It increased both the deduction limit and the phaseout threshold for the Section 179 expensing election. In 2024, the maximum deduction is set at $1.22 million, with the phaseout starting when qualifying purchases exceed $3.05 million.
If you haven’t yet maximized your Section 179 deduction, you can reduce your 2024 tax bill by purchasing eligible new or used assets and placing them in service before year-end. These assets include machinery, equipment, office furniture, software, and certain business vehicles. Additionally, you can expense qualified improvement property (such as interior facility improvements) and upgrades to roofs, HVAC, fire protection, and security systems.
However, the Section 179 expensing election has limits for income from business activities. If the deduction exceeds your income, you can carry the excess forward or use it as bonus depreciation, which doesn’t have dollar limits or phaseouts.
Bonus Depreciation
Bonus depreciation is also subject to a time constraint. The TCJA gradually reduces 100% first-year bonus depreciation by 20% each year until it phases out in 2027 (unless Congress intervenes). For 2024, the deduction is reduced to 60% of the purchase price.
If you’re planning to make eligible purchases in early 2025, it may be beneficial to accelerate them into 2024 for a larger immediate deduction. Eligible assets include new or used items like machinery, equipment, computer systems, software, vehicles, and office furniture with a useful life of 20 years or less.
Keep in mind that accelerated depreciation isn’t always the best option. It could be more beneficial to spread deductions out over future years, especially if you expect to move into a higher tax bracket. Also, accelerated depreciation may reduce the advantages of other tax breaks, such as the Section 199A deduction for qualified business income (QBI), which is set to expire on December 31, 2025.
Research Credit
The TCJA also improved the tax treatment of research and development (R&D) expenses for manufacturers. Manufacturers may now be able to:
- Claim the full R&D credit for direct research costs.
- Deduct all research and experimentation costs using the Section 174 deduction.
Although you can claim both the research credit and Section 174 deduction in the same year, they can’t be used for the same expense. You’ll need to decide which benefit applies to each dollar spent on research activities.
The research credit is a valuable but often overlooked tax incentive, typically available for manufacturers developing new or improved products or processes. It can also help offset the impact of the TCJA’s requirement to amortize Section 174 costs over five years (or 15 years for foreign expenses). Now is a good time to review your potential qualified research expenses for the year.
Newer Incentives
The IRA and CHIPS Act introduced additional incentives that manufacturers can take advantage of before year-end. For example, Section 48D offers a 25% tax credit for investments in facilities that manufacture semiconductors or semiconductor manufacturing equipment. You can claim this credit for 2024 by placing eligible property in service before December 31.
Section 45X provides production credit for U.S.-manufactured components such as solar, wind energy components, inverters, battery components, and critical minerals. The credit is based on the amount of eligible components produced during the tax year. Increasing production in the coming months could maximize this credit, which begins to phase out in 2030.
Take Action Now
To capitalize on these and other 2024 tax-saving opportunities, it’s important to act promptly. Reach out if you need guidance on your year-end tax planning—we’re here to help!
