Business decisions require proper attention to all the relevant factors in the process. Simply looking at the bottom line for profitability doesn’t go far enough if profit doesn’t truly reflect the costs of implementing new ideas.

The most obvious consideration is the tax impact of actions taken by a business. The difference of a day on the calendar can tip the scales in a very different direction, so the steps taken by the company must be carefully planned with an eye toward potential tax liabilities.

Here are some specific issues in tax liability that you should consider before your company takes the plunge with a change in assets:

Personnel Costs

Personnel costs are consistently among the most significant ones in a business, yet they are often overlooked when changes are being made. The rush of installing and activating new equipment or systems can give management tunnel vision about how best to handle the human side of it.

In a rapidly-evolving manufacturing world, new software and machinery hit the market in a steady stream. Your workers need to be well-versed in their use if you are to maximize the efficiency they promise.

As you look at training and re-allocating workers, bear in mind the tax implications of those changes. Should obsolete workers be kept on the payroll or laid off? Should new personnel be delayed until year’s end? What about the expenses of paying them during training on the new systems?

It’s here that a program like MasterTax payroll tax software can help you quickly address personnel changes without creating a whole separate crisis. Let the automation deal with the paychecks and keep your energy on the new processes.

Inventory

New manufacturing equipment and processes can allow us to do amazing things in terms of our efficiency on the line. However, a seismic shift in how we convert raw materials into finished products can dictate the way we stockpile each of them.

A faster process will require larger inventories of raw materials to ensure that the system is adequately supplied. It will also produce larger inventories of ready products awaiting sale or shipment.

What is the impact of those growing stacks of boxes or barrels on your tax liability? How can you adjust the timing of outputs and inputs to hit the correct times of the year on taking and making delivery?

Better manufacturing systems will require that you revisit every step in the process, keeping inventories of supplies and finished products at optimal levels. Excess in either can prove costly at tax time.

Depreciation

Finally, remember that the front end of the changeover isn’t the end of it. Each year, the new equipment will experience depreciation. The financial benefits of claiming this on taxes are very real.

Depreciation was codified into the US tax system for the simple reason that items lose value. When they are long-term investments, like factory equipment, it’s beneficial for businesses to be able to make this non-cash expense into something measurable.

Don’t neglect this component of an upgrade. Whatever equipment you removed to make room for the new system has probably depreciated to almost zero. Properly documenting and establishing depreciation for the new equipment will help reduce the sting of its price tag.

It’s not difficult to choose to obey the law when it comes to taxes. But it can be very difficult to make the most of the laws as they are written. Simple oversights can prove very costly over time, so it’s very important to understand the implications of major changes such as upgraded equipment. Starting off on the right foot with new systems can pay dividends for years to come.