Below, weā€™ve highlighted two tax credit opportunities where we notice many manufacturers have ā€˜left money on the table,ā€™ so to speak. We attribute these oversights to old assumptions and misunderstood parameters and that can easily be rectified with the correct applications.

1: R&D Tax Credit: Easier to Attain than Many Assume
One of the biggest tax credits that manufacturers overlook or do not maximize is the Research and Development (R&D) tax credit. Yet, it is by far the most valuable credit that can be leveraged by manufacturing companies.

As the credit has been around for 40 years, Iā€™ve talked to several individuals in management that believe the credit is not worth their time. There seems to be two consistent reasons as to why they are not taking advantage of the R&D credit today.

The best part about the R&D credit is that most states also offer this credit, meaning that there is the opportunity to get a federal and state tax credit to offset a company’s or individuals (if pass-through) tax liabilities.

2: WOTC: Classifications Often Overlooked Due to Misunderstanding

Another underutilized tax credit is the Work Opportunity Tax Credit (WOTC). With 10 targeted classifications that an employee can fall under to be eligible to receive the credit, employers are often overlooking hiring from specified ā€˜Target Groupsā€™ and missing out on benefits. This classification is easily overlooked, but easy to obtain: Hiring people from an Empowerment zone, Enterprise community, or Renewal community where the company is located.

Have you maxed out your tax benefits? Pinion’s manufacturing-specialized tax advisors can help! Contact Justin Mentele at Justin.Mentele@PinionGlobal.com.

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The Section 45Z tax credit provides biofuel producers (ethanol, biodiesel and sustainable aviation fuel) with an incentive to produce low-emission fuels. What makes this different is it could provide a business model in which the farmersā€™ carbon data is associated with their crop at the point of sale, rather than maintain the trend of carbon being an asset on its own.

Iowa farmer Mitchell Hora says his low-carbon intensity grain could be worth more than $400 per acre in 45Z tax credits.

Thatā€™s the good news. Hereā€™s the catch ā€” the Internal Revenue Service (IRS) has yet to issue its own regulation, which is the holdup for ethanol companies before giving a clear answer on the value to farmers.

ā€œOur goal is to make the process simple, so farmers understand how they can receive ā€“ and increase incentives as they lead in meeting the vast and growing demand for lower CI products,” Paul Scheetz, ADM director of Climate Smart Ag Origination.

Grain will be assessed with a CI score, which has a set of parameters determined by the Department of Energy. Currently, the standard CI score for corn is 29.1. The Inflation Reduction Act sets a weighted average below 25.
ā€œThe value potential here is pretty good ā€” 5.4 cents per CI point below the industry standard,ā€ says Paul Neiffer, a farm CPA. ā€œIf you raise 200 bu. corn with a CI score of 0, thatā€™s $1.57 per bushel and an extra $314 in value. Now, the ethanol plant isnā€™t expected to share 100%, but it could be 25% to 30%. There’s definitely potential here for material value to the farmer. I don’t think this is pie in the sky.ā€

Unlike the previous program, these tax credits will provide the ethanol plants with an opportunity to sell excess credits on the secondary market. Note: 45Z is only good for three years: Jan. 1, 2025, to Dec. 31, 2027.

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