| Organization: European-based industrial component manufacturer with 12 locations. | Need: Advanced strategies to better categorize inventory for tax savings. | Outcome: $300,000 in annual tax savings using an updated method for large manufacturers. |
Understanding the situation
A European-based industrial component manufacturer was on a steady growth path, with 12 locations across the globe including a U.S. location earning almost $200 million in annual revenue.
Like many manufacturers, inventory is a hefty carrying cost. The company had recently started working with CLA on its tax compliance, planning, and strategy needs and wanted to know — could the firm offer any strategies to help reduce significant inventory costs?
Get advanced tax strategies to help you save on inventory costs.
Exploring the challenge
CLA works with sizeable manufacturers across the country and globe and has helped many similar companies with their inventory strategy needs. CLA’s federal tax strategies team thought the client was a great candidate to use the modified simplified production method option, which is particularly helpful to manufacturers with more than $50 million in revenues.
The method allows companies to use different absorption rates on pre-production versus production inventory. By doing that, raw materials generally see lower overhead capitalized into pre-production inventory for tax purposes, allowing for a greater tax deduction.
Quarter after quarter, we benefit from proactive savings opportunities by working with CLA on our tax planning needs. CFO, global industrial component manufacturer
Achieving results
Using the new method, the company could reduce the amount capitalized into ending inventory by $1 million, resulting in $300,000 in annual tax savings. The savings helped the company continue its global growth plans.
Contact us
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