August 2026

Take control of working capital

Posted on August 31, 2026August 31, 2026 by CJadmin25

A profitable business can still run short of cash. Receivables may take time to collect, inventory can tie up funds and bills may come due before customers pay. Effective working capital management can help your business maintain liquidity and remain prepared for growth opportunities or unexpected challenges.

What are the components of working capital?

Working capital is calculated by subtracting current liabilities from current assets. The math is simple, but the result requires context. Start by identifying the specific components that drive the calculation.

Current assets generally include assets expected to be converted to cash, sold or consumed within one year (or the business’s normal operating cycle, if longer). Common examples are:

Cash and cash equivalents,
Accounts receivable,
Inventory,
Certain short-term investments, and
Prepaid expenses.

Not every asset that could eventually be sold or converted to cash qualifies as current. Classification depends on the asset’s nature and when the business expects to realize or use it.

Current liabilities generally include obligations due within the same timeframe. Examples include:

Accounts payable,
Accrued expenses,
Short-term loans, and
The current portion of long-term debt.

An outstanding balance on a line of credit may also be classified as current, depending on the arrangement’s terms and the business’s ability to defer repayment.

How can you manage it more effectively?

Although many items affect working capital, the following three levers often provide the greatest opportunities for improvement:

1. Receivables. Strong collection practices are critical. Review accounts receivable aging reports regularly, address disputed or overdue invoices promptly, and establish credit limits and payment terms based on customer risk. Early payment discounts may accelerate collections, but weigh the cash flow benefit against the cost of the discount.

You also can improve the collection process by issuing invoices quickly, offering electronic payment options, automating payment reminders and requesting deposits or milestone payments when appropriate. A bank lockbox may speed processing for businesses that still receive a significant volume of paper checks. Monitor customer concentration and recurring late payments, because receivables contribute little to liquidity if they can’t be collected on time.

2. Inventory. Excess or obsolete inventory can consume cash and generate unnecessary storage, security, insurance and handling costs. But reducing inventory too aggressively can lead to stockouts, production delays and lost sales. The goal should be to maintain enough inventory to meet expected demand while limiting slow-moving and obsolete items.

Regularly review inventory turnover and demand forecasts. Modern inventory systems can help identify purchasing trends and automate reorder points. When appropriate, sharing forecasts and other data with key customers and suppliers may improve planning and reduce supply chain disruptions.

3. Payables. Businesses often try to preserve cash by delaying payments, but consistently paying late can damage vendor relationships and lead to less favorable terms. Use the full payment period available under your agreements without exceeding the due date. Also evaluate whether early payment discounts provide a worthwhile return.

Prepare short-term cash forecasts so upcoming obligations don’t come as a surprise. If existing terms create liquidity pressure, consider negotiating longer payment periods, installment arrangements or other terms with vendors before balances become past due.

Are your improvements sustainable?

To maximize the benefits of your improvement efforts, adjustments to these three levers must be sustainable over the long run. This requires management’s ongoing attention. Include working capital in strategic planning and review relevant measures at regular management meetings. Common metrics include:

The current ratio, calculated as current assets divided by current liabilities,
Days inventory outstanding (DIO), the average number of days inventory is held before being sold,
Days sales outstanding (DSO), the average number of days it takes to collect payment from customers, and
Days payables outstanding (DPO), the average number of days a business takes to pay its suppliers.

The cash conversion cycle (DIO + DSO − DPO) estimates how long cash is tied up in your operating cycle. Your accountant can help you calculate these metrics, determine what’s most relevant for your operations and evaluate your results over time or against industry benchmarks.

At smaller businesses, the owner may need to lead the effort. At midsize businesses, working capital management should involve finance, sales, purchasing, operations and other functions that influence customer terms, inventory levels and vendor payments. Assigning clear responsibility can help prevent one department’s decisions from creating cash flow problems elsewhere.

Reliable technology is also important. Rather than assuming every business needs a full enterprise resource planning (ERP) system, evaluate whether your existing accounting platform and integrated receivables, payables and inventory tools provide timely, accurate information. More complex businesses may benefit from an ERP system, but the appropriate solution should reflect your business’s size, operations and reporting needs.

In addition, technology — such as electronic invoicing, customer payment portals, automated reminders and integrated payment processing — may shorten collection times and reduce manual data entry. Appropriate user permissions, approval controls, data backups and cybersecurity protocols can help safeguard these processes.

Keep liquidity in view

It’s common for business owners to focus on growing the top and bottom lines of their income statements, but the balance sheet deserves attention, too. Regularly monitoring the components of working capital can help reveal operational issues, such as slow-paying customers, obsolete inventory and unfavorable payment terms, before they become larger cash-flow problems. Contact us for help evaluating your existing processes and identifying strategies to strengthen your working capital management.

IRS Guidance on Qualified Opportunity Zone Changes: Key Rules for Investors and QOF Managers

Posted on August 27, 2026August 27, 2026 by CJadmin25

IRS Notice 2026-40 provides Qualified Opportunity Zone tax guidance 2026 for capital gains investors. Deferred gains from original investments must be recognized on 2026 tax returns. Fund managers must adopt working capital plans by December 31, 2026, to protect post-2026 property tax benefits.

QOZ Tax Guidance 2026: IRS Rules & OBBBA Changes

Capital gains investors and Qualified Opportunity Fund (QOF) managers face shifting tax rules. The original Qualified Opportunity Zone (QOZ) program reaches major statutory dates soon. Legislative updates under the One Big Beautiful Bill Act (OBBBA) made the QOZ program permanent. However, IRS Notice 2026-40 establishes strict compliance windows before December 31, 2026.

Investors need a clear structure to preserve capital gain deferrals. They also need to protect fund tax status under the permanent framework.

How Do IRS Notice 2026-40 Rules Affect Existing QOF Investments Through 2026?

Investors holding original QOF investments must recognize remaining deferred capital gains on their 2026 tax returns. IRS Notice 2026-40 clarifies this requirement. Taxpayers holding qualifying investments through December 31, 2026, must include deferred gains in taxable income for that tax year.

Taxpayers cannot roll that recognized gain into a new QOF to extend deferral further. However, investors can choose to hold their QOF interests beyond 2026. Holding an investment for at least 10 years eliminates taxable capital gains from fund growth. The investor adjusts the basis to fair market value upon sale.

Gains recognized before December 31, 2026, follow different rules. Early disposition gains remain eligible for deferral if reinvested in a new QOF within 180 days. Reinvestment resets the 10-year holding clock from the new investment date. Investors should review liquidity needs with CJ’s tax strategy team before year-end.

Can Property Acquired After 2026 in Original Opportunity Zones Still Qualify?

Tangible business property acquired after December 31, 2026, in original QOZs generally does not qualify as QOZ business property. The OBBBA restricts post-2026 property qualifications to zones designated after July 4, 2025.

IRS Notice 2026-40 provides two critical exceptions for Qualified Opportunity Zone Businesses (QOZBs) in original zones:

Working Capital Safe Harbor: The QOZB must acquire property under a written plan adopted before December 31, 2026. The business must receive at least 10% of working capital assets before December 31, 2026. It must also spend at least 5% by that same date.
Ordinary Course Replacement Exception: A QOF or QOZB acquires property in an existing zone to replace existing business assets. This exception covers normal maintenance and upgrades. It does not cover operations expansion or new business lines.

QOF managers must audit asset acquisition plans now. Meeting these dates ensures compliance under official IRS Notice guidance.

What Changes Did the OBBBA Make to Permanent Qualified Opportunity Zone Tax Benefits?

The OBBBA established a permanent QOZ program with rolling 10-year zone designations. The initial round of newly designated zones opens on January 1, 2027. Officials expect about 6,500 new zones nationwide. Original QOZ designations expire on December 31, 2028.

Investors still defer capital gains under the permanent program. They receive a 10% step-up in basis at year five. At that five-year mark, investors must recognize the remaining rollover gain. The OBBBA eliminated the secondary 15% step-up previously available at year seven.

The 10-year gain exclusion remains active for up to 30 years from the initial investment date. The OBBBA also introduced dedicated rural QOZs. These rural zones offer a 30% step-up on rollover gains after five years.

How Should Investors and QOF Managers Prepare for the December 31, 2026 Deadline?

Fund managers must align capital deployment strategies with IRS safe harbor dates. Businesses operating in original zones need written working capital plans before year-end. These plans preserve property qualifications for post-2026 expenditures.

Investors should prepare for tax liabilities coming due on original deferred gains for the 2026 tax year. Clear cash flow projections help prevent liquidity strain when tax payments are due. Structured guidance keeps fund operations compliant and steady through regulatory shifts.

CJ brings clarity to complex tax changes. Contact our team to schedule a focused planning session.

FAQs: Qualified Opportunity Zone (QOZ) Tax Incentives

What happens to QOZ deferred capital gains on December 31, 2026?

Investors must include remaining deferred capital gains in taxable income on their 2026 tax return. You cannot defer this gain further by rolling it into another fund.

However, keeping the investment for 10 years retains the permanent tax exemption on fund growth.

Can I still invest in original Opportunity Zones after 2026?

Yes, but tangible property acquired in original zones after December 31, 2026, faces strict qualification rules.

To qualify, property must meet the working capital safe harbor adopted before year-end 2026 or qualify as an ordinary course business replacement.

How does the OBBBA rural Opportunity Zone incentive work?

The OBBBA created a rural QOZ designation offering enhanced tax benefits. Investors who roll capital gains into qualified rural funds receive a 30% basis step-up after holding the investment for five years.

This step-up significantly reduces the recognized rollover gain.

Does the 10-year gain exclusion still apply under new QOZ rules?

Yes. Both the TCJA framework and the permanent OBBBA rules preserve the complete exclusion of capital gains generated by the QOF investment itself.

You must hold the fund interest for at least 10 years to qualify for this benefit.

S Corp vs. LLC: Choosing the Best Entity Type for Your Startup

Posted on August 27, 2026September 2, 2026 by CJadmin25

Choosing the right business entity—such as a Multimember LLC or an S Corporation—directly impacts your personal liability, operational flexibility, and tax obligations. While S Corporations can help minimize self-employment taxes, Multimember LLCs offer stronger tax-basis advantages and highly flexible profit allocations. Choosing the right structure requires proactive tax planning and strategic advice. What is the […]

The post S Corp vs. LLC: Choosing the Best Entity Type for Your Startup appeared first on The CJ Group | CPAs and Advisors.

Source: https://www.thecjgroup.com/s-corp-vs-llc-business-entity-type/

S Corp vs. LLC: Choosing the Best Entity Type for Your Startup

Posted on August 18, 2026August 18, 2026 by CJadmin25

What is the Right Entity Type for Your New Business?

Start-ups must choose a legal entity for their business activities early in the formation process. The type of entity you select acts as the foundation of your business operations—it dictates how your company is taxed, the extent of your personal liability for debts and obligations, and how you manage internal capital.

Assuming you are going into business with one or more partners, two of the most popular options for middle-market entrepreneurs are S corporations and multimember LLCs (treated as partnerships for tax purposes).

Both are pass-through entities, meaning tax items pass through directly to the individual owners and are reported on their personal federal income tax returns. Both also offer robust liability protection. However, the subtle operational and financial differences between the two require a tailored, strategic approach.

The Core Differences Between Multimember LLCs and S Corporations

Tax Advantages and Flexibility of a Multimember LLC

A multimember LLC effectively blends the legal safeguards of a corporation with the distinct tax benefits of a partnership. By operating as an LLC, your personal assets are generally shielded from entity-related liabilities under state law. Furthermore, all LLC members can actively participate in management without forfeiting their liability protection.

From a tax perspective, members are subject to federal income tax rules for partners. Your share of the LLC’s taxable income, gains, losses, deductions, and credits passes through to your personal return, meaning the LLC itself owes no federal income tax.

However, you must be prepared for self-employment taxes. You may owe a 12.4% Social Security tax on the first $184,500 of self-employment income (for 2026), plus a 2.9% Medicare tax on all self-employment income. Fortunately, half of this tax is deductible on your personal return.

Note: Certain professional practices (like law or medicine) may be restricted from forming LLCs based on state laws or professional board regulations.

When to Choose S Corporation Status

An S corporation is a specialized tax designation available to qualifying domestic corporations. Much like a traditional C corporation, it shields shareholders from personal liability.

The most significant advantage an S corporation holds over an LLC is regarding self-employment taxes. Shareholder-employees are not required to pay self-employment tax on their distributive share of the profits. Instead, they must pay themselves “reasonable compensation” (a standard salary) which is subject to standard payroll taxes, allowing the remaining profits to be distributed free of self-employment tax.

However, S corporations face strict compliance requirements. As outlined by the IRS guidelines for Subchapter S elections, these entities are limited to 100 shareholders, can only issue one class of stock, and cannot have non-resident aliens as shareholders.

Key Factors in Your Business Entity Selection

When weighing your options, the flexibility of the partnership tax rules that apply to multimember LLCs often outweighs the rules governing S corporations. Consider these strategic differences:

Tax Basis for Loss Deductions: LLC members receive an additional tax basis from entity-level liabilities, whereas S corporation shareholders only gain a basis from direct loans they make to the corporation. This allows LLC members to deduct more losses.
Asset Step-Ups: When an LLC member buys an interest from another member, the tax basis of the new member’s share of LLC assets can be stepped up, lowering their tax obligation when assets are eventually sold.
Profit Allocation and Asset Transfers: LLCs have incredible flexibility to make disproportionate allocations of taxable income and losses among members. Conversely, S corporations must allocate all pass-through tax items strictly in proportion to stock ownership percentages.

Make a Tax-Smart Choice for Your Startup

Choosing your business entity requires proactive planning and a deep understanding of your long-term financial goals. A misstep in entity formation can result in unnecessary tax burdens or complex structural limitations as your company scales.

At The CJ Group, our tailored approach goes beyond conventional frameworks. We offer comprehensive Tax Services and strategic Advisory & Consulting to ensure your new business is structured for maximum efficiency, reduced liability, and optimal growth.

Ready to build a successful business with clarity and confidence? Contact The CJ Group today to consult with our seasoned industry experts and determine the optimal entity setup for your unique journey.

Can You Pause or Reduce Your Company’s 401(k) Match?

Posted on August 13, 2026August 13, 2026 by CJadmin25

Eliminating your 401(k) match can temporarily improve cash flow, but it risks violating plan documents and increasing turnover. Before making cuts, review safe harbor restrictions, consider discretionary profit-sharing alternatives, and ensure changes will not trigger nondiscrimination testing failures.

Rethinking Your 401(k) Match Without Hurting Retention

Review Your 401(k) Plan Document First

When cash flow tightens, organizations often rethink significant expenses like matching contributions to retirement plans. Several large employers have recently reduced or paused their matches to cut costs. As a mid-market employer, you might consider doing the same.

But you cannot simply stop matching without looking at the rules. Employer matches motivate participation by promising a specific contribution, such as 50 cents for every dollar deferred up to 6% of pay.

Safe Harbor and SIMPLE Plan Restrictions

Before changing this, you must check your plan document.

Safe harbor 401(k) plans and SIMPLEs mandate specific matching or nonelective contributions.
These plan types also restrict midyear changes and often require advance notice to participants.

Assuming you can drop the match can lead to corrective contributions, administrative fees, and frustrated employees.

The Hidden Costs of Cutting Your Employer Match

Pausing the match improves near-term cash flow, but the long-term impact is often negative. Employees view matching contributions as a core part of their total compensation.

Eliminating the match abruptly hurts morale.
The decision can push valued workers to accept competing job offers.
Replacing a team member can easily cost more than the expected savings from cutting the match.

Nondiscrimination Testing and Retention Risks

Plan testing requires your attention. Traditional 401(k)s undergo annual nondiscrimination testing to ensure that contributions to owners and highly compensated employees are not disproportionately large relative to those of rank-and-file participants. Dropping the match discourages entry-level earners from participating. This makes it harder to pass compliance tests and limits the contributions of highly compensated employees. If your plan size is growing, these compliance hurdles become even more critical during your annual employee benefit plan audit.

Alternatives to Eliminating Retirement Contributions

If you must reduce expenses, look for ways to preserve some value for your employees. You may be able to lower the matching rate or reduce the eligible compensation percentage, depending on your plan document.

Business owners can explore discretionary profit-sharing contributions instead of regular matches.
Profit-sharing is not tied directly to employee salary deferrals.
Sponsors can decide annually whether to make a contribution and how much to give.
This rewards participants during strong years without locking the business into a fixed expense during a downturn.

Discretionary Profit-Sharing and Vesting Schedules

If your plan permits, you might subject employer matches to a vesting schedule. While safe harbor and SIMPLE contributions are typically fully vested immediately, traditional 401(k) matches can vest over time. A permissible schedule supports retention and limits the cost of matching deferrals for short-term employees. Keep in mind that changing a schedule cannot reduce the vested rights participants have already accrued.

Protect Your Fiduciary Status with Due Diligence

Your retirement plan should align with your financial performance and workforce strategy. Reevaluating your match is a standard business practice, but you must perform careful due diligence first. We can help you analyze the tax effects, model different contribution formulas, and ensure you remain compliant. Reach out to The CJ Group to discuss advisory and consulting solutions that protect your business and keep your financials predictable and under control.

Private Equity in Construction: What Owners Must Know

Posted on August 13, 2026August 13, 2026 by CJadmin25

Private equity firms are actively acquiring controlling interests in construction businesses, particularly specialty contractors, to improve profitability and resell them. Owners gain access to capital and potential secondary payouts but must adapt to strict financial reporting, operational changes, and shared control.

Should You Sell Your Construction Business to Private Equity?

Private equity activity in the construction industry is surging. Global construction M&A deal value reached $33 billion in the third quarter of 2025, according to the Construction Financial Management Association (CFMA). This volume is driven largely by growing interest in construction services and specialty trades.

If you are pondering your exit strategy or intrigued by a potentially lucrative sale of your ownership interest, private equity investments offer enticing benefits. You simply must know what you are getting into before committing to a deal. The process, the partnership, and the expectations differ wildly from a traditional business sale.

How Do Private Equity Construction Deals Work?

Private equity transactions vary from traditional business sales in a very specific way. Under a traditional approach, you typically sell your entire ownership interest and exit the business at closing. Private equity firms often prefer the owner to retain a meaningful stake in the construction business after the deal is complete. Many would rather buy a controlling interest in the target business, funded with a combination of investor equity and debt.

You essentially operate in partnership with the private equity firm. Bear in mind that most of these firms share the ultimate goal of improving profitability and overall value so the business can be sold again. This usually happens in three to seven years. At that point, if the value of your retained ownership interest has increased, you may receive an additional payout on top of the original purchase price and any earnouts. Earnouts are structured payments awarded for achieving specified performance targets post-close.

What Are the Pros and Cons of a Private Equity Partnership?

Selling a controlling interest to a private equity firm gives you immediate access to capital, high-level expertise, and the resources to grow your construction business beyond what you could likely achieve on your own. If you receive that additional payout when the firm eventually resells the business, you may end up with a greater overall financial gain than you would get from a standard traditional sale.

These firms are laser-focused on increasing a business’s value. They impose rigorous reporting requirements to monitor performance. They implement formalized internal controls to reduce risk. Sometimes they mandate significant operational changes to cut costs and improve profitability.

As a partner, you will likely have much less control over your construction business than you have had in the past. The amount of influence you retain depends on the transaction’s governance provisions, ownership structure, and other negotiated terms. The business may also have to carry more debt than you would normally be comfortable with, particularly if it is used to finance the acquisition or fund a later expansion. You also need to consider how a transaction affects relationships with sureties, lenders, key employees, and long-term stakeholders.

How Does a Private Equity Sale Impact Your Taxes?

Taxation generally depends on how the deal is structured. This includes purchase price allocation and whether the transaction is an asset sale or an equity sale. Asset sales tend to be highly beneficial for private equity firms. They provide a step-up in tax basis, which generates significant tax deductions for the buyer. Equity sales typically carry over the target business’s existing tax basis, limiting the buyer’s tax benefits.

For sellers, equity sales are often far more favorable. The proceeds may be taxed primarily at lower capital gains rates. Asset sales may cause some portion of the proceeds to be taxed at higher ordinary income rates.

You need proactive, coordinated tax planning to determine whether a prospective private equity deal can be structured to avoid unnecessary tax exposure. The CJ Group aligns tax with your financials throughout the year, so decisions are made with the tax impact already in view, reducing K-1 surprises and avoidable liabilities.

Which Construction Businesses Are Private Equity Targets?

Private equity firms are particularly interested in specialty and service-oriented segments of the construction industry. This includes roofers, HVAC specialists, and contractors serving high-demand sectors like data centers and advanced manufacturing facilities. These types of businesses possess wider profit margins than general contractors and the high growth potential that private equity firms covet. Construction businesses in geographic regions with high building activity also attract greater interest.

Private equity firms strictly scrutinize the degree of owner involvement. This poses a major hurdle for an owner who is heavily involved in day-to-day operations. If you are doing the books at night, a buyer sees risk. You need a solid second-line management team in place alongside well-documented, independently functioning systems. Additional favored characteristics include:

A stable workforce with access to skilled labor
Healthy, predictable cash flows
Reliable supply chains and subcontractors
A lengthy, verifiable backlog of work
Strong bonding capacity
Recurring revenue from repeat customers or maintenance contracts
Rigorous internal controls
No red flags, such as pending litigation or recurring safety issues

How Can Advisory and Accounting Services Prepare You for a Sale?

Financial transparency is critical during the due diligence phase. Private equity firms will request at least three years of reliable financial statements and tax returns. They may require audited financial statements or a formal quality-of-earnings (QoE) analysis to verify your revenue.

You cannot trust the numbers if your close keeps slipping or if everything depends on one person. This is where structured, predictable accounting becomes essential. The CJ Group steps in and stabilizes your back office to replace late nights fixing books with a steady, repeatable process. We bring clarity to margins, unit economics, and overall control.

For construction firms, this means accurately tracking construction profit fade.
It also requires maintaining a clean, defensible WIP and CIP schedule.
Most importantly, it involves bridging the field-versus-office gap so your data matches reality.

Getting involved with a private equity firm is rarely an ideal exit strategy if you want a full payout upfront or if you want to cut ties completely after closing. There can be clear strategic advantages to these transactions under the right circumstances.

Work closely with your leadership team and professional mergers and acquisitions advisory partners to explore all possibilities. The CJ Group’s advisory practice helps owners clear roadblocks so you reach your objectives without surprises. If it is worth a quick conversation, we are happy to take a look and help you evaluate whether working with a private equity firm makes financial and operational sense for your business.

How Does Structured Outsourced Accounting Improve Cash Flow?

Posted on August 5, 2026August 5, 2026 by CJadmin25

The CJ Group runs your accounting as a structured, outsourced finance function, not just bookkeeping. This approach delivers an on-time monthly close and reliable reporting that drives confident decisions regarding cash flow, margins, and sustainable business growth.

How Structured Outsourced Accounting Replaces Guesswork with Confidence

Financial information is the foundation for every important business decision. Whether your goal is to improve cash flow, launch a new offering, hire additional workers, or expand into a new market, accurate data enables you to make decisions confidently.

The Hidden Cost of Reactive Bookkeeping

Many business owners do not realize they need bookkeeping support until problems surface. Are you frequently behind on invoicing, scrambling to prepare tax returns, or struggling to reconcile bank accounts? When you have no confidence in the numbers, and your financials change after they are distributed, it is time to seek help.

Professional bookkeeping keeps your records organized. It replaces late nights fixing books and over-reliance on one person with something steady and repeatable. Accurate books improve tax compliance, too, and make it easier to apply for financing when you need additional capital.

Which Key Financial Reports Actually Drive Decisions?

Once your bookkeeping is in order, review key financial reports regularly. At a minimum, you should always be familiar with your business’s most recent records:

Profit and loss statement
Balance sheet
Cash flow statement
Accounts receivable and payable reports

When prepared carefully, these reports can provide early warning signs if they show, for example, that revenue or cash flow is slowing. Rather than reacting to financial surprises, you can address issues before they become major problems. Reliable records allow you to confidently evaluate and pursue your next objective, such as acquiring another business, launching a new marketing campaign, or expanding your facilities.

Managing Cash Flow Before It Stalls Operations

Even profitable businesses can struggle if cash is not managed effectively. Late-paying customers, for instance, are a serious problem when your business needs to pay its own employees, office rent, and suppliers on time. Without careful planning, temporary cash shortages can interrupt critical operations.

In addition to suggesting best practices for billing and collections, your financial advisor can help you identify any seasonal trends and develop realistic cash flow forecasts and cash reserve targets.

Building a Predictable Finance Function

Successful businesses do not grow through guesswork. They flourish because owners thoroughly understand their financial position and use that knowledge to make informed decisions. CJ delivers structured, predictable accounting that gives leaders clarity on margins, cash, and performance, without adding internal headcount.

By partnering with our team for outsourced accounting, you can reduce risk and prepare your business for long-term success. If you require deeper guidance on determining when outside financing makes sense, our CFO advisory services provide the strategic insight you need.

Maximize Manufacturing Tax Savings: The New 100% QPP Depreciation Rule Explained

Posted on August 3, 2026August 2, 2026 by CJadmin25

The IRS issued Notice 2026-16, providing interim guidance on a new 100% depreciation deduction for qualified production property (QPP) created by the OBBBA. This allowance applies to manufacturing-related real property placed in service between July 2025 and December 2030, drastically accelerating tax benefits for qualifying businesses.

IRS Releases Interim Guidance on New QPP Depreciation Deduction

A new but temporary special depreciation allowance for qualified production property (QPP) was created by last year’s One Big Beautiful Bill Act (OBBBA). Under previous law, taxpayers had to depreciate such property over a 39-year period. The OBBBA allows taxpayers to elect a deduction equal to 100% of the property’s adjusted basis in the tax year it is placed in service—effectively functioning as bonus depreciation for certain buildings and production facilities.

The IRS recently issued interim guidance via Notice 2026-16 that taxpayers can generally rely on until proposed regulations are published. This notice clarifies several important issues related to claiming the deduction.

What is the QPP Depreciation Deduction (OBBBA)?

The QPP deduction is a highly beneficial tax provision available for certain manufacturing-related real property placed in service after July 4, 2025, and before January 1, 2031. It allows businesses to dramatically accelerate their depreciation timeline, freeing up cash flow for further investment.

Identifying Qualified Production Property (QPP)

To take advantage of this deduction, your property must meet strict IRS definitions. The guidance defines QPP as any portion of nonresidential real property that meets the following criteria:

It is subject to the Modified Accelerated Cost Recovery System (MACRS).
It is used by the taxpayer as an “integral part” of a qualified production activity (QPA).
It is placed in service in the United States or any of its territories.

Additionally, the property’s construction must begin after January 19, 2025, and before January 1, 2029. The original use generally must begin with the taxpayer, though certain used property may qualify under special rules.

Requirements for Nonresidential Real Property

The guidance specifies several types of ineligible property. You cannot claim this deduction for property used for:

Offices and administrative services
Lodging and parking
Sales, research, software development, or engineering activities
Storage of finished products

For properties with mixed uses, taxpayers may use any reasonable method to allocate the unadjusted depreciable basis between eligible and ineligible space. Reasonable methods include utilizing square footage, cost segregation data, architectural plans, or process diagrams.

The “Integral Part” Rule and Integrated Facilities

Property is considered an integral part of a QPA if the activity takes place within its physical space. Generally, each unit of property must satisfy this requirement independently. However, the IRS provides an exception for “integrated facilities.”

Taxpayers can treat multiple properties that operate together on contiguous land as a single unit. For example, if a manufacturer builds a new storage facility for raw materials that supports two adjacent factories, all three buildings constitute a single unit of property. Furthermore, a de minimis rule applies: if 95% or more of a property’s space meets the requirement, the entire property can be treated as qualifying.

What Qualifies as a Qualified Production Activity (QPA)?

A QPA encompasses the manufacturing, production, or refining of a qualified product that results in a “substantial transformation.” This generally applies to any tangible personal property (excluding food or beverages prepared and sold in the same building).

The IRS interprets the term QPA broadly, defining substantial transformation as turning raw materials and subcomponents into a fundamentally different, distinct final product. A QPA can also include:

Essential Activities: Receiving and storing raw materials utilized during production.
Related Activities: Oversight and direction of the manufacturing process.

Note: The IRS explicitly limits the term “production” to activities within the agricultural or chemical industries.

Maximize Your Tax Break with Strategic Planning

The interim guidance also introduces special rules, election procedures, a safe harbor for property placed in service in 2025, and strict depreciation recapture rules if a property’s use changes within 10 years.

Navigating the complexities of MACRS, basis allocation, and OBBBA regulations requires precision. The team of CPAs and advisors at The CJ Group is ready to help you evaluate your eligibility. Through our comprehensive tax planning and advisory services, we can help you implement cost segregation studies, correctly identify QPP, and maximize this new tax break.

Ready to accelerate your depreciation deductions? Contact us today to schedule a consultation with our tax specialists.

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