Maximizing Year-End Cash Flow for Manufacturing Companies

As 2025 comes to a close, manufacturing businesses across the United States face another year of rapid change; tariffs, logistics pressures, and tax reforms continue to impact profitability. To help you approach year-end with confidence, BMSS has outlined key strategies that can strengthen cash flow, reduce tax liability, and provide the peace of mind you need heading into 2026.

1. Strengthen Cash Flow Through Smart Equipment & Asset Investments

Take advantage of 100% bonus depreciation and utilize full expensing for qualified production property (QPP)
The recently enacted One Big Beautiful Bill Act (OBBBA) introduced significant enhancements to depreciation incentives for manufacturing companies: 100% bonus depreciation and full expensing of qualified production property (QPP). With 100% bonus depreciation, manufacturers that purchase and place into service eligible new or used equipment after January 19, 2025 can immediately deduct the entire cost in the year the asset is placed in service, rather than depreciating it over several years.

In addition, new rules for qualified production property allow manufacturers to fully expense the cost of constructing or upgrading production facilities, rather than depreciating these costs over 39 years. To qualify, construction must begin after January 19, 2025 and before January 1, 2029, with the property placed in service after July 4, 2025 and before January 1, 2031. The property must be owned and used by the taxpayer in its own manufacturing or production activities. Leased facilities and spaces used primarily for office or research purposes do not qualify.

Maximize Section 179 expensing
Under the OBBBA, the Section 179 expensing limit has been increased to $2.5 million, with the phaseout threshold raised to $4 million. This expansion allows manufacturers to immediately deduct the full cost of eligible assets up to these higher limits (subject to business income limitations), resulting in direct, dollar-for-dollar tax savings on qualifying investments.

If you’re uncertain how bonus depreciation or Section 179 expensing may apply to your business, our team can help evaluate which projects offer the greatest return. Connect with us to explore the strategic advantages these tax-saving opportunities can offer.

2. Optimize Research and Development (R&D) Deductions and Credits

Accelerate domestic R&D activities.
The OBBBA reinstates immediate expensing for domestic R&D expenditures for tax years after December 31, 2024. If you are developing new processes or improving production methods, accelerating qualified research expenditures can boost current-year deductions.

Revisit previously capitalized R&D.
You may have opportunities to amend prior filings or capture new deductions in 2025. Our R&D specialists can help identify qualifying activities and ensure proper documentation thereby reducing risk and increasing peace of mind.

Coordinate R&D Credits.
The R&D credit remains available for taxpayers engaged in eligible research and experimentation activities. However, the OBBBA clarifies that deductions for domestic R&D expenditures must be reduced by the amount of any research credit claimed.   

3. Improve Inventory and Cost Management Before Year-End

Write off obsolete inventory.
Disposing of or discounting obsolete inventory before year-end may allow immediate deductions, provided the requirements for recognizing a loss are met. BMSS can guide you through the compliance steps required for this process.

Consider valuation opportunities.
If market conditions have shifted, moving to a lower-of-cost-or-market inventory method may unlock additional deductions.

4. Accelerate Deductible Expenses Strategically

Pay outstanding bills early.
Paying outstanding vendor bills and ensuring bonuses are paid before December 31 can increase deductible expenses for the current year for cash basis taxpayers. For accrual-method taxpayers, ensure all economic performance and deductibility requirements are satisfied.

Prepay up to 12 months of eligible costs.
Consider prepaying up to 12 months of eligible expenses (such as insurance or maintenance contracts) that meet the IRS 12-month rule, allowing a current year deduction.

5. Use Income-Deferral Opportunities Where Appropriate

Adjust shipment timing.
For cash-method taxpayers, delaying certain year-end shipments until January may defer income recognition, if operationally feasible.

Apply advance payment deferral rules.
Eligible taxpayers may defer recognizing certain advance payments (e.g., for goods and services) to the following year under IRS rules, subject to proper election and documentation.

6. Capture Valuable Manufacturing Credits

Assess Eligibility for the Section 45X Advanced Manufacturing Production Credit.
Manufacturers producing qualifying clean-energy components should ensure proper tracking and documentation to claim the section 45X credit, subject to the OBBBA’s new restrictions and phase-out schedules.

Consider Other Clean Energy Credits.
Other clean energy credits (sections 45Y, 48E, 45Q, 45V, 45Z) are relevant in 2025, but many are subject to early phase-outs and new restrictions, especially for foreign-owned or influenced entities.

7. Practical Steps for Smooth Year-End Execution

Act quickly on time-sensitive opportunities.
Several strategies, such as equipment purchases and inventory write-offs, require action before December 31 so the time to review these options is now.

Document every move.
Detailed and organized recordkeeping supports audit-ready tax positions and avoids surprises.

Model the cash flow impact.
Your BMSS advisor can help quantify the benefit of each strategy so you can prioritize high-value actions with clarity and confidence.

Watch for state tax differences.
Some states may not conform to federal provisions. BMSS’ State & Local Tax team’s expertise can help you remain compliant in every jurisdiction where you operate.

Prepare with Confidence and Peace of Mind

The year-end clock is ticking, but with the right planning, manufacturers can secure meaningful cash flow improvements under the new tax landscape. If you’d like help evaluating these and other opportunities, your BMSS professional is ready to assist. Call (833) CPA-BMSS to gain thoughtful, proactive guidance, and peace of mind, as we close out 2025 and head into 2026.