How Plastics Manufacturers Can Save with Section 179 and Bonus Depreciation

Key Takeaways:
  • Plastics manufacturers can reduce their tax bills and increase cash flow by leveraging Section 179, bonus depreciation and industry-specific tax credits.
  • Proper inventory tracking and R&D tax credits can uncover hidden savings, helping manufacturers manage costs.
  • A CPA firm with manufacturing expertise can identify missed opportunities and ensure tax strategies align with business growth.

 

As a plastics manufacturer, you’re in the business of creating solutions—innovating processes, optimizing operations and delivering quality products that keep industries moving. But are you giving your tax strategy the same level of attention? 

Rising material costs, supply chain challenges and labor shortages mean every dollar matters. Taking full advantage of available tax deductions and credits can reduce your tax liability, increase cash flow and free up resources to reinvest in your business. Whether you’re upgrading equipment, managing inventory or exploring new technologies, the tax code has built-in incentives designed for manufacturers like you. 

Here’s a breakdown of popular tax deductions and credits for plastics manufacturers—and how to make them work for your business. 

What Tax Deductions Can Plastics Manufacturers Claim? 

  • Depreciation on Equipment Investments 

Upgrading your equipment or investing in new machinery can provide significant tax benefits. Depreciation allows you to recover the cost of these assets over time, and in many cases, you can accelerate the timeline: 

  • Section 179 Deduction: You can deduct up to $1,250,000 in equipment purchases in the year they’re placed into service, as long as your total qualifying investments don’t exceed $3,130,000. 
  • Bonus Depreciation: For 2025, you can deduct 40% of qualifying asset costs upfront. This applies to equipment purchases like machinery or software but doesn’t extend to building expansions, which must be depreciated over 39 years. 

Practical Tip: Review your recent purchases. If you’ve invested in new equipment, make sure it’s properly categorized for maximum deductions. 

  • Inventory Tracking and Cost of Goods Sold (COGS) 

Efficient inventory management doesn’t just improve operations—it directly impacts your taxes. By properly tracking raw materials, work in process and finished goods, you can accurately calculate your COGS and claim the associated deductions. 

Why it matters: 

  • Underreporting COGS can inflate your tax bill. 
  • Tracking inventory lets you write off unusable or scrap materials, reducing taxable income. 
  • It gives you better insight into margins, helping you identify rising costs and explore alternatives. 

Practical Tip: If you don’t have a robust inventory system in place, consider investing in one. The savings from accurate cost tracking often outweigh the upfront expense. 

What Tax Credits Are Available for Plastics Manufacturers? 

  • Research and Development (R&D) Tax Credit 

If you’re developing new products, testing materials or improving production processes, you may qualify for the R&D credit. This federal credit rewards innovation and can offset expenses like wages, supplies and contractor costs related to R&D. 

To qualify, your activities must meet these criteria: 

  1. Develop a new or improved product, process, or formula. 
  2. Be technological in nature. 
  3. Involve a process of experimentation. 
  4. Address uncertainties in design or functionality. 

Practical Tip: Don’t assume you’re ineligible because your work isn’t in a lab. Many manufacturing activities, like experimenting with new materials or improving production efficiency, qualify. 

  • Investment Tax Credit (ITC) 

Thinking about solar energy? Installing a solar system not only reduces energy costs but also qualifies for a federal tax credit of up to 30% of the installation cost. 

This credit can: 

  • Lower your tax liability. 
  • Provide ongoing savings through reduced utility expenses. 

Practical Tip: Evaluate whether the long-term savings align with your facility’s energy needs. 

  • State Tax Incentives 

Many states offer credits for manufacturers. In Kansas, for example, the High Performance Incentive Program (HPIP) provides a 10% state tax credit for companies paying above-average wages and making qualifying investments in equipment or facilities. 

Practical Tip: Explore what credits are available in your state. A manufacturing tax advisor can help navigate these programs and ensure you’re maximizing your savings. 

How Can a CPA Firm Help My Manufacturing Business? 

Understanding and leveraging these deductions and credits can be complex. That’s where a CPA firm specializing in manufacturing comes in. Here’s how we can help: 

  • Identify Missed Opportunities: We analyze your expenses to uncover deductions and credits you might have overlooked. 
  • Ensure Compliance: Tax laws are constantly changing. We ensure you’re up-to-date and in compliance. 
  • Improve Cash Flow: By optimizing your tax strategy, we help you reinvest in your business. 

Taxes shouldn’t be an afterthought. With the right approach, they can become a tool for growth. Whether you’re investing in new equipment, managing inventory or exploring state and federal credits, we’re here to help. Contact an Adams Brown advisor.