7 Year-Round Tax Strategies for Construction Business Success
To increase construction business success, implement these year-round tax strategies:
- Determine the proper accounting method: Confirm that your tax reporting method aligns with each contract's long-term or short-term status. Different tax reporting methods may be applicable, such as the percentage-of-completion method (PCM) for long-term contracts or alternative methods for residential builders.
- Check eligibility for research and development tax credit: If your construction company develops new processes to improve efficiency or reduce uncertainty, you may qualify for the research and development (R&D) tax credit. This credit can be carried forward or back to offset income tax liability or payroll taxes.
- Utilize the energy-efficient building deduction: Take advantage of the Energy Efficient Building Deduction (Section 179D) to claim a tax deduction of $1.80 per square foot for energy-efficient improvements to commercial and government buildings. This deduction can be carried forward or back.
- Maximize the Employee Retention Credit (ERC): The ERC is a refundable tax credit that reduces certain employment taxes, including the employer's share of Social Security and Medicare taxes. Even if you have furloughed workers, you may still be eligible to claim this credit, including eligible health insurance costs.
- Monitor contractual provisions: Understand how different contract provisions impact tax reporting requirements. Pay if paid or paid when paid clauses, unit price contracts, GMP contracts, and retainage provisions all have varying tax implications.
- Take advantage of bonus depreciation changes: The CARES Act allows for 100% bonus depreciation for eligible Qualified Improvement Property (QIP) placed in service between 2018 and 2022. This deduction is limited to 80% of the cost of the property for 2023. Certain businesses, including REITs and manufacturers, may also qualify.
- Explore state tax credits/programs: Work with us to maximize both federal and state credits and incentives. States often offer environmental and green energy credits that can benefit the construction industry.
Taking a strategic, holistic approach to tax planning is crucial for long-term business success. Consult with us to guide you through the cost-benefit analysis of these strategies and help you develop a growth plan for your company's sustained success.