Our team has extensive experience in the construction accounting.  Let us help you maximize your tax savings so you can concentrate on running and growing your business.  Here are some great tax breaks especially helpful to construction companies – contact us for more information to see how these may apply to your business.

 

Corporate tax rates: The corporate rate was lowered to a flat 21% starting in 2018.  Before this reduction, the top tax rate was 35%.  Additionally, there is no Alternative Minimum Corporate Tax starting in 2018.  This results in significant tax savings.

 

Qualified Business Income Deduction: The Tax Cut and Jobs Act allows pass-through entities—such as partnerships, S corporations and limited liability companies (LLCs)—to claim up to a 20% deduction on earnings, subject to certain restrictions..

 

Section 179 deduction: Under Section 179 of the tax code, a business can currently deduct, or “expense,” the cost of qualified property up to a specified maximum, subject to a phaseout threshold. The maximum allowance is currently $1 million and the phaseout threshold is $2.5 million.  Qualified real property eligible for Section 179 now includes roofs, heating, air conditioning, ventilation, alarm systems, and security systems.

 

Bonus depreciation: The Tax Cuts and Jobs Act set the percentage at 100% for qualified property placed in service after September 27, 2017, meaning taxpayers can deduct 100% of qualified business assets as additional first-year depreciation.  This applies to both new and used assets and there are no income thresholds.  The 100% bonus depreciation deduction is effective until December 31, 2022, when it’s scheduled to begin phasing out at 20% per year, down to 20% at 2026.

 

Fuel Tax Credit:  This credit is for federal taxes paid on various types of fuels.  There are two that are most likely to pertain to contractors – off-highway business use of gasoline in machinery and trucks; and business use of undyed diesel fuel.  The credit is based on gallons used, so use of these fuels must be tracked throughout the year.

 

Research & Development Tax Credit:  Construction companies who spend time and money developing new or improved products or processes could be eligible for R&D tax credits.  To claim the credit, research activities and expenses must be documented for each qualified activity.  Some examples of potential qualifying activities: developing and improving construction equipment, designing LEED/Green Initiatives, electrical system design, and improving installation means and methods.

 

Work Opportunity Tax Credit:  This Federal tax credit is available to employers for hiring individuals from certain targeted groups, such as veterans, ex-felons, SNAP recipients, and long-term unemployment recipients.  The business may apply the credit against its business income tax liability and the normal carry-back and carry-forward rules apply.  The maximum tax credit is calculated as a percent of the new employee’s first-year wages: 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours.

 

If you have any questions or concerns for best practices for accounting for construction companies, please don’t hesitate to reach out to our team.