How to Navigate Manufacturing Equipment Depreciation

Depreciation Duration: Depreciation is the process of allocating the cost of an asset over its useful life. The duration of depreciation varies based on the type of equipment. While machinery and manufacturing tools may have a longer useful life, computers and technology might become obsolete sooner. It’s essential for businesses to understand the expected useful life of each asset to make informed decisions about depreciation. For more info on what depreciation is, check out this page: https://www.investopedia.com/terms/d/depreciation.asp

Examples of Manufacturing Depreciation

Listed below are some of the most common pieces of manufacturing according to google.

• CNC Machine
  • Say you are a in the non-ferrous metal casting industry and you buy a CNC lathe. You can depreciate that asset over a 10 year period.
• Laser Cutter
  • If you are in the heavy gauge metal container manufacturing industry and you buy a laser cutter. That asset is depreciable over a 7 year period.
• Drilling Machine
  • Maybe you are in the metal casting industry and you go to purchase a drilling machine, the asset would be depreciable over 15 years.

Since there are so many different manufacturing assets, it is important to get in touch with a CPA who can give you the correct information.

Bonus Depreciation for Federal Purposes (2024)

For the tax year 2024, the federal government offers a bonus depreciation of 60%. This means that businesses can deduct 60% of the cost of qualified property in the first year of its use. This incentive aims to stimulate economic growth and encourage businesses to invest in new equipment. Manufacturing businesses should take advantage of this bonus depreciation to reduce their taxable income and improve cash flow.

California Depreciation Rules: California, however, has its own set of rules when it comes to depreciation. Unlike the federal government, California does not provide a bonus depreciation incentive. Instead, businesses can explore Section 179, which allows for the immediate deduction of the cost of qualifying property, up to a certain limit. It’s important to note that California’s Section 179 deduction is limited compared to federal allowances.

Challenges and Considerations: Manufacturing businesses operating in California need to carefully navigate these differing federal and state depreciation rules. While the federal bonus depreciation offers a significant tax advantage, businesses must be mindful of the limitations imposed by California’s rules. Striking the right balance between maximizing federal benefits and adhering to state regulations requires strategic financial planning.

Conclusion:

Navigating depreciation for manufacturing equipment is a critical aspect of financial management. Understanding their depreciation durations, and the intricacies of federal and state rules is essential for making informed decisions. In 2024, manufacturing businesses should capitalize on the federal bonus depreciation of 60%, while also considering California’s Section 179 deduction, despite its limitations. By aligning with these guidelines, businesses can optimize their tax positions and enhance their overall financial health in the competitive manufacturing landscape.