Manufacturing/Distribution Articles

Ransomware attacks pose a significant threat to manufacturers, disrupting operations and jeopardizing supply chains. Implementing proactive measures such as robust backups, network segmentation, employee training, and incident response planning can dramatically reduce risk. Strengthening cybersecurity across IT and OT environments helps safeguard business continuity and protect critical assets.

Digital twins, virtual replicas of physical systems, are revolutionizing manufacturing by enabling real-time monitoring, predictive maintenance, and smarter decision-making. Originally developed by NASA, this technology is helping manufacturers optimize operations, reduce costs, and accelerate innovation. While implementation can be complex, the potential benefits make it a compelling investment for forward-thinking companies.

Manufacturing companies expanding across borders must understand transfer pricing to value intercompany transactions and comply with tax regulations. Proper documentation and adherence to IRS and OECD guidelines are crucial to avoid penalties and ensure accurate tax reporting. Proactive management of transfer pricing can also optimize global tax positions within legal boundaries.

The OBBBA includes significant tax provisions that impact the U.S. manufacturing industry, such as resetting bonus depreciation to 100%, increasing Section 179 expensing limits, and making the QBI deduction permanent. Manufacturers should stay informed about these changes as the bill progresses through the legislative process. Please note that the tax law discussed in this article is currently proposed and has not yet been enacted.

Owners of small manufacturing businesses structured as S corporations must ensure they receive reasonable compensation for their work to comply with IRS rules. While distributions can offer tax advantages, they must follow fair salary payments based on the owner’s role, responsibilities, and industry standards. The IRS evaluates compensation by analyzing how business income is generated and expects thorough documentation to support salary decisions, especially when owners perform multiple roles within the company.

Manufacturing companies face the challenge of attracting and retaining skilled employees in today's competitive labor market. To stand out, they must build a compelling employer brand that emphasizes career growth opportunities, investment in technology, and a commitment to employee well-being. Strategies such as fostering a positive work culture, establishing clear career paths, highlighting technological innovation, and recognizing employee achievements can significantly enhance job satisfaction and productivity.

Correctly classifying workers as either employees or independent contractors is crucial to avoid costly consequences such as audits, back taxes, penalties, and lawsuits. Guidance is provided on understanding worker classification, the implications of misclassification, and the cautious use of Form SS-8 to request IRS determinations.

Manufacturers are facing uncertainty due to factors like shifting tariff policies, supply chain disruptions, fluctuating demand, and rising raw material costs. Rolling forecasts and financial modeling are two financial planning tools that can help manufacturers navigate this instability by providing continuous updates and testing various assumptions.  

This presentation by Lumsden McCormick, Boosting Cash Flow: Maximizing Federal R&D Tax Credits for Manufacturers, covered key benefits of a federal R&D tax credit, the qualified activities and expenses for federal R&D tax credits, and much more.

Group captive insurance is a strategic alternative to traditional insurance models, allowing manufacturing companies to pool their risks and stabilize costs. It offers significant benefits such as cost savings, customization, control over claims, and tax advantages, making it an attractive option for companies with strong risk management practices.