Top 5 Ways our New Tax Law will Positively Impact Manufacturing

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Top 5 Ways our New Tax Law will Positively Impact Manufacturing

Bhavnesh Patel, March 12, 2018

Over the past few months, I’ve met with numerous manufacturers and manufacturing suppliers and sooner or later the Tax Cuts and Jobs Act (TCJA) is always discussed. One fact is fairly well established - the new tax law is having a positive impact to manufacturing sector. When the conversation goes deeper, it seems less understood as to why.

After reading articles from a variety of sources, this is my attempt at explaining a few highlights that are especially relevant to manufacturers.

  1. The full cost of capital expenditures can be expensed over the next 5 years then gradually reduces by 20% each year starting in 2023. Another significant change is that this applies to both new and used equipment and is effective back to September 27, 2017. Why is this important? The accelerated depreciation expense for the next five years lowers a company’s tax bill, freeing cash for other investments. (Source: Manufacturers Come Out on Top in 2017 Tax Reform, Industry Week, Feb 2, 2018)
  2. International Reforms - The previous law taxed foreign profits at 35% with a tax credit for foreign income taxes up to the US limit. With the new TCJA, tax on dividends brought back from foreign subsidiaries are completely eliminated. Secondly, the new tax law introduced Global Intangible Low Tax Income (GILTI) which taxes intangible profits of US subsidiaries at 10.5%. This was intended to capture lost tax revenue from companies setting subsidiaries in low tax rate countries. Finally, TCJA provides a one-time option to bring back past profits of foreign affiliates at a rate of 15.5% on cash assets and 8% on non-cash assets. (Source: Explaining the TCJA’s International Reforms, Tax Policy Center, Feb 2, 2018;  BEAT or GILT? BKD, Jan 2018)
  3. Reduced tax rates - Corporate AMT has been repealed, C-Corp tax rates have been reduced from 35% to 21% and pass-through businesses rates have been reduced from 40% to 30% This will potentially free up additional cash for additional capital expenditures, new hires and other related investments. (Source: How Will Tax Bill Affect Manufacturers? Industry Week, Jan 4, 2018)
  4. Family Leave Credit - If a company pays at least 50% of the employee’s wages for a family leave or sick program, the company can receive a tax credit. (Source: Tax Credit Aims To Boost Availability Of Paid Family Leave, But Will It Work?,, Jan 23, 2018)
  5. Pass-through Deductions - This is not a simple deduction or even a simple concept to understand. If you have a sole proprietorship, partnership or pass-through business that manufactures, you may be eligible for additional deduction. For a more complete description, see the article by Tax Policy Center

Now, with all of this said, I want to say I’m not an accountant or tax advisor, however I am following closely how the new Tax Bill will help with Manufacturing. Please review any decisions with a professional tax advisor.

We’d love to hear from you. What are your thoughts on the New Tax Bill? How has it positively or negatively impacted your manufacturing business?

Bhavnesh PatelVolt480