The Complete Guide to Manufacturing Tax Credits
Originally published on December 9, 2025
Many manufacturing companies are already performing activities that qualify for tax credits without realizing it. According to the National Association of Manufacturers (2025), the industry accounts for over 10% of total U.S. economic output. Despite this, a large number of manufacturers miss tax-saving opportunities that were designed specifically to support their operations.
Manufacturing often involves new product design, production improvements or investments in cleaner, more efficient equipment. These aren’t just operational upgrades. Many of these steps could qualify your business for tax credits that reduce what you owe on a dollar-for-dollar basis.
This guide outlines the key federal and state tax credits that are relevant to manufacturers, explains how to determine eligibility and shows how to move forward with claiming what you’ve earned. If you’ve upgraded equipment, improved workflows or made energy-saving changes, you may qualify without even realizing it.
Understanding the Value: How Tax Credits Support Manufacturing Growth
Tax credits are direct reductions in tax liability, not just deductions from income. This makes them especially useful to manufacturers that invest in assets, processes and improvements year after year.
Federal credits available to manufacturers include:
- R&D Tax Credit – For improving products or processes, even through trial and error or custom solutions
- Energy Investment Tax Credit (ITC) – Applies to solar, geothermal or clean energy projects, with credits ranging up to 30%
- Work Opportunity Tax Credit (WOTC) – Encourages hiring individuals from specific groups that traditionally face barriers to employment.
- New Markets Tax Credit – Provides an incentive to commercial development in low-income communities.
- The 45X and 48C Credits – Related to producing energy-efficient products.
Each credit includes specific requirements for eligibility, recordkeeping and documentation. For a breakdown of available business credits, the IRS provides current listings at its Credits and Deductions for Businesses page. You can also find industry-level insights at the NAM Economic Data and Reports page, which tracks policy impact, tax trends and sector performance.
R&D Tax Credit for Manufacturers
Many manufacturing activities qualify for the R&D tax credit even if the work does not look like traditional scientific research. According to the IRS, activities that improve how you make a product or how your process works may qualify. That includes testing new materials, workflow redesign or automating steps in assembly. When you invest time and resources into creating prototypes reducing defects or designing tooling, you might already meet eligibility thresholds.
To claim R&D tax credit you must show four basic elements:
- A permitted purpose, such as improving functionality reliability quality or reducing costs.
- Technical uncertainty, where you didn’t know in advance how to solve a problem.
- Experimentation, where you tried different designs or methods.
- Process of experimentation, where you test alternatives record results adjust and document.
You must also retain both economic risk and rights to the ending intellectual property (IP) when working on R&D projects for customers. In other words, you bear the ultimate financial responsibility if the work is not successful, and you maintain ownership of the knowledge used in the final product.
Qualified expenses may include wages for employees doing R&D work, supplies used in R&D, and contract research. Keep detailed documentation such as project plans, design records, invoices test results and time allocations for staff.
IRS rules allow firms to elect between several R&D credit calculation methods (depending on which gives greater credit value for your specific R&D mix). Also, some government programs or state incentives may double up with the federal credit to increase value.
Investing in the Areas (and People) That Need It the Most
Sometimes tax credits do more than better your bottom line. They can also benefit the community you serve, especially when it comes to disadvantaged populations.
For example, the New Markets Tax Credit (NMTC) is a powerful program that rewards investment in economically distressed communities, offering a 39% federal tax credit spread over seven years. Manufacturers expanding into low-income areas or retrofitting facilities in underserved regions may find this credit especially valuable. The credit is 5% annually for the first three years, and 6% annually for the remaining four years. This incentive is tied to qualified equity investments (QEIs) in Community Development Entities (CDEs), which then deploy capital into projects that stimulate economic growth and job creation.
For manufacturers, this could mean support for building a new plant, acquiring equipment or funding job training programs — all while making a meaningful impact in communities that need it most. However, access to NMTCs is competitive and limited by federal allocation caps, so businesses must work with designated CDEs to structure qualifying investments.
Energy Efficiency and Sustainability Credits: Incentives for Greener Operations
Manufacturers that invest in clean energy property or sustainability improvements can access several federal tax credits under current law. The Clean Electricity Investment Credit helps businesses that build or install qualified clean or renewable energy facilities or energy storage technology after Dec. 31, 2024. That credit base rate is 6% of the qualified investment. It increases to 30% if the project meets wage apprenticeship requirements and domestic content rules or is located in an energy community.
The Advanced Energy Project Investment Credit (often known as Section 48C) gives manufacturers credits for establishing or upgrading industrial facilities that produce renewable energy components or reduce greenhouse gas emissions. That credit covers property investments under defined energy project categories.
The Advanced Manufacturing Production Credit (Section 45X) rewards manufacturing of clean energy components. That credit applies per unit of clean energy component produced or processed. It can be claimed by manufacturers who produce qualifying components under the rules established in the Inflation Reduction Act.
To claim these credits, companies must document eligible property, energy property, components placed in service and relevant production volumes. They must also meet requirements around domestic content (or labor or wages), use correct IRS forms and maintain detailed records of costs and timelines.
State-Level Manufacturing Tax Credits and Incentives
Florida provides several incentives for manufacturers. One example is Florida’s Capital Investment Tax Credit for certain high‑impact industries, including advanced manufacturing, clean energy semiconductors, life sciences or other designated sectors. That credit applies against the corporate income tax or premium tax liability.
The Florida Department of Revenue offers exemptions and tax incentives for manufacturing‑related energy use. For example, electricity or steam used in operating qualifying manufacturing machinery or equipment may have exemptions under state law.
In some states “sales and use tax exemptions” or “machinery exemption” statutes apply to industries that purchase machinery equipment or consume tangible personal property in industrial processing or manufacturing. These exemptions reduce the upfront cost of equipment used in production.
When evaluating state credits, businesses must check eligibility thresholds application or certification requirements, expiration dates or renewal schedules, state forms or agencies in charge and periodic changes in state law to ensure they remain eligible.
Other Incentives
Tax credits aren’t the only way manufacturing businesses can save on their returns. Section 179 allows manufacturers to expense the full cost of qualifying equipment in the same year it is placed in service. According to IRS Publication 946, the limit for the Section 179 deduction in 2025 is $1,250,000. That applies only if total qualifying equipment purchases don’t exceed $3,130,000 in that tax year. If purchases exceed that threshold, the deduction amount is reduced dollar by dollar by the amount over that limit.
Bonus depreciation offers another option to recover asset costs more rapidly. For certain eligible property placed in service after Dec. 31, 2024, bonus depreciation is 40% under the special depreciation allowance.
Qualifying property under Section 179 includes machinery, equipment, business vehicles, off‑the‑shelf software and certain upgrades to nonresidential property. Each item must be used more than 50% in your business operations. You must put the property in service within the tax year you claim the deduction.
To claim these, use IRS Form 4562. Maintain invoices placement‑in‑service dates business‑use logs proof of payment and descriptions that allow identification of what property does what.
How to Claim Manufacturing Tax Credits the Right Way
Manufacturing tax credits can offer meaningful value to companies that invest in process improvements, capital assets or energy-efficient upgrades. With multiple programs at the federal and state level, manufacturers have access to credits that apply across operations, from product development to machinery investments.
Contact a James Moore tax professional to assess your eligibility, gather proper documentation and prepare your return to include all qualified credits. Our team works with manufacturers across sectors to identify credits that apply to your operations and help ensure you’re following each program’s requirements.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
