By Karen Shenk, CPA, CVA, CCIFP, CEPA, CFE and Evan Flynn
The 2025 tax legislation, signed into law on July 4, 2025, brings significant reforms that directly impact manufacturers and distributors. With newly permanent provisions and expanded deductions, the changes offer valuable tax planning opportunities across the manufacturing industry. In this summary, we outline the most impactful tax changes, compare them to prior law, and provide practical planning insights.
What Changed:
At the start of 2025, bonus depreciation was set at 40% and scheduled to phase out completely by 2027. The new law now permanently restores 100% bonus depreciation for all qualified assets placed in service after January 19, 2025.
Planning Tip:
To maximize tax savings, prioritize purchasing and placing machinery and equipment in service before the end of 2025.
What Changed:
The cap for Section 179 deductions has increased to $2.5 million, more than double the previous limit, with the phase-out beginning at $4 million.
Planning Tip:
The increased Section 179 cap allows for both federal and state-specific tax savings on high-value assets. Once the threshold is reached, layering in bonus depreciation can enhance total tax savings.
What Changed:
R&D expenses for domestic activity are now permanently deductible in the year incurred, replacing the five-year amortization previously required. Foreign R&D must still be amortized over 15 years.
Planning Tip:
Increase investment in U.S-based innovation and product development. Consider shifting R&D activity domestically to leverage the full deduction.
What Changed:
The 30% interest deduction limitation has reverted to EBITDA instead of EBIT, restoring a more generous deduction method for leveraged companies.
Planning Tip:
Revisit your debt financing strategy. This EBITDA-based approach increases the deductible amount, making business loans more tax-efficient.
What Changed:
New tax legislation expands bonus depreciation to include certain qualified production property used in manufacturing, extending well beyond the typical scope of machinery and equipment. This new incentive applies to longer-lived assets such as structural components and facility improvements that would normally be depreciated over 15 to 39 years.
Construction must begin after January 19, 2025, and the property must be placed in service before January 1, 2031. This gives manufacturers an extended window to invest in production-supporting facility upgrades and fully expense eligible costs up front.
Planning Tip:
Consider conducting a cost segregation study for new or upgraded facilities. These studies break down construction or acquisition costs to identify components that may qualify for accelerated depreciation, including the newly eligible assets under this expanded manufacturing incentive. A cost segregation analysis can uncover hidden value and help ensure you don’t leave any bonus depreciation on the table.
The 2025 tax legislation offers substantial advantages to manufacturing and distribution businesses, especially those investing in growth, innovation, and modernization. With permanent full expensing, increased caps, and R&D incentives, proactive planning is key to maximizing benefits.
To better understand how these changes affect your operations, visit our Contact Us page. Our professionals are ready to provide insights tailored to your business goals.
Karen Shenk, CPA, CVA, CCIFP, CEPA, CFE
Karen joined Trout CPA in 2012 after working at a firm in the Chicago area since 2004. She graduated from Trinity International University with a Bachelor of Science degree in Business, with an emphasis in Accounting and a minor in Philosophy. She chairs the firm’s Manufacturing & Distribution Industry Group and is an active member of the Construction & Real Estate Industry Group and the firm’s Executive Committee.
As a professional, Karen gains a deep understanding of her clients' industry, goals, and needs so she can better advise them. She enjoys working closely with entrepreneurial business owners and their finance departments to contribute to their success. Her experience in manufacturing, distribution, and construction positions her to provide insightful advice on complex industry-specific issues. Her experience with transactions and succession planning gives her the ability to advise clients who want to explore their options.
Evan Flynn
Evan joined Trout CPA in August of 2023. He graduated from Penn State University with a Bachelor of Science in Accounting and a minor in Information Sciences and Technologies in 2022. As an Associate, Evan assists with tax preparation, assurance services, and outsourced accounting.