7 Midyear Tax-Reduction Strategies for Manufacturers

As we approach the midpoint of the year, it’s an opportune time for manufacturers to evaluate their tax position and implement strategies that may reduce their 2025 tax liability. While every situation is unique, here are seven key tax-saving moves that could benefit your manufacturing business this year.

1. Place Business Property into Service

Federal tax law offers generous deductions for machinery and equipment placed into service in 2025. Your company may qualify for:

• Section 179 Deduction – For 2025, businesses can expense up to $1.22 million of qualified property. This deduction begins to phase out when total purchases exceed $3.05 million.
• First-Year Bonus Depreciation – The bonus depreciation rate has decreased to 60% for 2025 (down from 80% in 2023 and 100% in prior years). This incentive applies to new and used qualified property placed into service this year.
• Regular Depreciation – Remaining costs can be depreciated under the Modified Accelerated Cost Recovery System (MACRS).

Special rules, such as limits for certain vehicles and property types, may apply, so be sure to review the details with your tax advisor.

2. Do Your Research

If your manufacturing business engages in qualified research and experimentation activities, you may be eligible for the Research Tax Credit. This credit typically equals 20% of qualified expenses above a base amount or a simplified 14% option may apply.

However, a critical change remains in effect: starting in 2022, businesses must amortize R&D expenses over five years (15 years for foreign research). While there has been ongoing legislative discussion about potential modifications, as of now, this amortization rule applies for 2025.

3. Target Your New Hires

With labor challenges continuing, manufacturers may benefit from the Work Opportunity Tax Credit (WOTC), which has been extended through 2025. The WOTC provides a credit generally equal to 40% of the first $6,000 in first-year wages for eligible employees from specific target groups. This can rise for certain groups, such as disabled veterans.

You may also qualify for a summertime credit when hiring youth employees (ages 16–17) who live in designated empowerment zones or enterprise communities. This credit equals 40% of the first $3,000 of wages.

4. Schedule Business Travel

If your company has resumed regular long-distance business travel, ensure you maximize allowable deductions. The full cost of airfare for business-related trips is deductible, along with business lodging, local transportation, and meals.

Remember, the temporary 100% deduction for business meals expired at the end of 2022. For 2025, the 50% limit on business meals applies.

5. Make Minor Repairs

Take care of routine maintenance tasks before year-end. Minor repairs—such as fixing leaks or broken equipment—are fully deductible in the year incurred. However, capital improvements (like expansions or structural overhauls) must be depreciated over time. The IRS provides safe-harbor rules to help distinguish between deductible repairs and capital improvements—check with your tax advisor to ensure compliance.

6. Employ Your Spouse and Adult Children

Hiring family members for legitimate work can provide valuable tax benefits. Your company can deduct wages and benefits just like with other employees, while family members gain access to retirement plan contributions and health insurance. Be sure to compensate them fairly and in line with market rates for the work performed.

7. Host an Employee Event

Celebrate your team’s hard work with a fully deductible company event. While business meals are generally limited to a 50% deduction, expenses for company-wide events—like a summer barbecue or holiday party—are 100% deductible. The key is that the event must be open to all employees, not just select executives.

Take Action Now

These strategies represent just a few opportunities to reduce your manufacturing company’s tax liability in 2025. Every business situation is unique, so it’s important to review your specific circumstances and goals. Let’s discuss your company’s midyear tax strategies and develop a plan tailored to your needs.