Potential Tax Benefits for Manufacturers Under OBBBA

Businesses across many industries may be affected by the One Big, Beautiful Bill Act (OBBBA) — but one industry that may see some of the biggest impacts is manufacturing.

If you run a manufacturing company, the good news is that many of the changes under OBBBA will affect your company positively — with expanded credits and deductions all around. 

Still, there are a lot of nuances, so taking the time to familiarize yourself with OBBBA as it relates to manufacturing business taxes will help you navigate these changes in the coming tax year.

Research and Experimental Deductions

For manufacturing businesses operating domestically, OBBBA now permits these companies to deduct 100% of their research and experimental costs. This includes unamortized research and experimental expenditures. Likewise, it is possible for small business taxpayers in this category to amend their prior years' filings to retroactively claim these credits, which could result in a significantly lower tax burden for manufacturing businesses conducting research and experimentation here in the United States.

Enhanced Deductions on Qualified Production Properties

Another notable change that could affect manufacturing businesses under OBBBA is the introduction of a deduction for Qualified Production Properties (QPPs), which are properties that are used for certain qualified production/manufacturing activities. When specific criteria are met, manufacturing businesses will be able to deduct 100% of the adjusted basis on these properties on the year they begin using them for production.

It is worth noting that there are many limitations on the types of properties that can be used for this credit, with specific exclusions for administrative and lodging properties. The current cutoff for these properties to be put into service is January 1, 2031, so this is something for manufacturing businesses to keep in mind if they have been thinking about adding new production properties.

Increase in Advanced Manufacturing Investment Credit

Under OBBBA, the advanced manufacturing investment credit was also raised from 25% to 35% for all properties placed into service after December 31, 2025. Under this credit, manufacturing facilities “whose primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment” may claim up to 35% of the qualified investment for the taxable year.

Properties must meet additional eligibility criteria, including:

• Being a tangible property subject to depreciation or amortization.
• Being built or purposed by the taxpayer.
• Being integral to the operation of a manufacturing facility.
  
  
  

Permanent Qualified Business Income (QBI) Deductions

In addition to the above tax benefits, manufacturing businesses may also benefit from the QBI deduction being made permanent under OBBBA. With this deduction, businesses (including manufacturing) can deduct up to 20% of their QBI from their taxable income.

This includes capital gains and losses, dividends, interest income and any income earned outside of the United States.

Enhanced Qualified Small Business Stock (QSBS) Exclusion

Likewise, manufacturing businesses may also be able to exclude some (or all) of their capital gains from their federal income tax based on the QSBS exclusion, which has been significantly expanded under OBBBA.

Specifically, the existing “gross asset test” has been increased from $50 million to $75 million, and lower gain exclusions have been increased from $10 million to $15 million.

Expanded Interest Expense Limitation

Last but not least, OBBBA has made changes to interest expense limitations, expanding it to include an add-back for depreciation, amortization and depletion in tax years beginning after December 31, 2024.

As a result, manufacturing businesses claiming this interest expense limitation may be able to deduct certain interest expenses that were not previously permitted.

However, this is something that business owners will need to review carefully for accuracy before filing.

How Can Your Manufacturing Business Take Advantage?

Despite some challenges, OBBBA is generally beneficial to manufacturing businesses from a tax perspective. By being able to claim more deductions and credits for things like qualified business income, research and development and qualified production properties, businesses can keep more of their hard-earned money and reinvest it into improving and scaling.

If you're looking for more assistance in navigating tax changes under OBBBA, setting up a consultation with a qualified tax professional will be your best option.

Ideally, you'll meet with a professional who has proven experience working with businesses in the manufacturing industry. From there, you can get the help you need navigating changes to tax law so you can file your business return with confidence.

To learn more about LGT and how we can serve you, contact us here.