With the onset of another tax season, firms in the automation and manufacturing sectors must assess how persistent economic and industry trends have impacted their profit margins and sustainability.
Improving Supply Chains
A study done in 2023 reveals that businesses have been stepping up their efforts to diversify and localize supplier networks to accommodate demand and conclude their growing inventory. This demonstrates a substantial shift in how supply chains are being managed, with a significant rise in the use of advanced methodologies for supply chain planning, execution, and risk management.
Managing a complicated global supply chain has not become any more straightforward. The study further states that almost every responder reported significant problems in the preceding 12 months. 44% cited substantial issues resulting from their supply chain footprint that compelled them to make changes in 2022-23. Almost half (49%) claimed supply chain interruptions had posed significant planning issues.
Fortunately, businesses have a few tools at their disposal this tax season to strengthen their supply chains and reinvest in their workforce. Automation firms that understand and take advantage of these critical tax incentives will thrive, remain competitive, and play an essential role in strengthening our domestic infrastructure.
R&D Tax Credit
The Research & Development Tax Credit, which was initially created to promote technical employment and reward innovation, is now a valuable resource for businesses across many industries, not just those employing scientists in lab coats. Since then, it has undergone several changes in Congress, and it now permits firms to deduct salary, supplier, contractor, and computer expenditures linked with introducing or enhancing new goods and processes. The R&D credit has been a significant driver of profitability and technology adoption for industrial enterprises, from automating supply chains to filling workforce shortages with advanced robots and machines.
However, Congress has enacted some significant policy changes regarding the R&D credit, and businesses must understand how this may affect their tax burden. Companies may no longer deduct 100% of their costs in the same year but must spread them out over five years. Unfortunately, this will reduce cash flow and limit resources for innovation, disproportionately affecting the industrial sector at an already volatile economic moment.
Many businesses have already raised concerns about how these changing requirements affect their workflows and projections. Still, until Congress resolves the issue and reinstates full expensing, automation leaders should exercise caution when allocating R&D resources to their most pressing problems.
Working closely with a CPA partner will be critical during tax season to help manufacturers claim their fair share and receive the required resources.
Thorough Documentation for Your Claim
Businesses must thoroughly document every R&D activities and expense; therefore, they should focus on the following:
- Identifying all business actions and initiatives that qualify. Anything that falls within developing new goods or processes, upgrading current products or processes, or improving on existing prototypes and/or software will likely entitle you to the R&D credit.
- Identifying the essential professionals who participated in the qualifying project. This is where keeping a record of employee testimony will come in handy to confirm R&D activity.
- Cataloging and double-checking all R&D-related expenses. Ideally, businesses should track these expenditures throughout the year to ease the deduction procedure in April.
Way Forward
With the new bipartisan bill on the horizon, tax gurus are forecasting good improvements in the future of this robust tax credit. Automation businesses must gear up for a swift yet efficient claiming process ahead of April deadlines. Businesses that take the time to grasp the advantages to which they are entitled will be able to not only survive in this challenging economic climate but also prosper and reinvest in worker resiliency and technology implementation. Don’t wait another year to lose these valuable resources.