10 minute read
As a construction company owner, navigating the complex world of taxes can be daunting. However, understanding and leveraging the available tax deductions and strategies is crucial for maximizing your company’s financial success. In this comprehensive guide, we’ll explore the key tax considerations for construction businesses and how Corvee’s advanced tax planning software can help you optimize your tax position.
The construction industry faces unique tax challenges due to the nature of its work, which often involves long-term contracts, varying project types, and significant material and labor costs. Some key tax considerations for construction companies include:
By effectively navigating these complexities, construction companies can minimize their tax liabilities and improve their bottom line. However, doing so requires a proactive approach to tax planning and a deep understanding of the available deductions and strategies.
One of the most powerful ways to reduce your construction company’s tax burden is by maximizing your deductions. Here are some essential deductions to consider:
Section 179 and Bonus Depreciation
Under Section 179 of the tax code, construction companies can deduct the full purchase price of qualifying equipment and software in the year they’re placed into service, up to certain limits. For 2023, the Section 179 deduction limit is $1,160,000, with a spending cap of $2,890,000. This allows for significant upfront tax savings on critical business investments.
Similarly, bonus depreciation enables companies to deduct a large percentage of the cost of eligible assets in the year of purchase. For assets placed in service after September 27, 2017, 100% bonus depreciation is available. This is scheduled to phase down to 80% for property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
Strategically utilizing these depreciation rules can greatly reduce your taxable income. However, it’s important to consider the long-term impact and work with a tax professional to determine the optimal approach for your company.
Vehicle and Equipment Expenses
Construction companies often rely heavily on vehicles and equipment to complete projects. Expenses related to operating, maintaining, and repairing these assets, including fuel costs, are generally tax-deductible.
For vehicles, you can choose between the standard mileage rate method or deducting actual expenses. In 2023, the standard mileage rate is 65.5 cents per business mile driven. If you choose to deduct actual expenses, you can write off costs like depreciation, lease payments, insurance, repairs, tires, and gas. Maintaining detailed records, including mileage logs and receipts, is crucial to support these deductions.
Equipment expenses, such as rental fees, maintenance costs, and small tools, are also typically deductible. Keeping accurate records of these expenses and their business purpose is essential.
Employee Salaries and Benefits
Salaries, wages, and benefits paid to your employees are typically fully deductible. This includes expenses like:
It’s important to ensure proper classification of workers as employees or independent contractors. Misclassification can lead to significant tax penalties and legal issues. Generally, if you have the right to control what work is done and how it’s done, the worker is likely an employee.
Job Materials and Supplies
The cost of materials and supplies used in construction projects is generally deductible in the year they’re purchased or consumed. This includes items like lumber, concrete, nails, and other raw materials.
Implementing a robust job costing system can help track these expenses accurately and allocate them to specific projects. This not only supports your tax deductions but also provides valuable insights into project profitability.
Keep in mind that if you maintain an inventory of materials, you may need to use the accrual method of accounting for tax purposes. The accrual method recognizes income when it’s earned and expenses when they’re incurred, regardless of when payment is received or made.
Home Office Deduction
If you use a portion of your home exclusively and regularly for your construction business, you may be able to deduct related expenses. This can include a prorated portion of:
The home office deduction can be calculated using the simplified square footage method or the actual expense method. The simplified method allows you to deduct $5 per square foot of your home office, up to 300 square feet. The actual expense method involves tracking all home office expenses and allocating them based on the percentage of your home used for business.
To qualify for the deduction, your home office must be your principal place of business or used regularly for meeting clients or customers. Detailed recordkeeping and following the IRS guidelines are critical to substantiating this deduction.
Business Travel and Meals
Travel expenses incurred for business purposes, such as visiting job sites or meeting with clients, are typically deductible. This includes:
To deduct travel expenses, the trip must be primarily for business and require you to be away from your tax home (the city or area where your business is located) for longer than an ordinary workday. Maintaining detailed records, including the business purpose and receipts, is essential to support these deductions.
For business meals, the deduction is generally limited to 50% of the cost. However, there are some exceptions. For example, meals provided to employees for the convenience of the employer (such as at a job site) are fully deductible. In 2021 and 2022, business meals purchased from restaurants were also temporarily 100% deductible.
Scan client returns. Uncover savings. Export a professional tax plan. All in minutes.
To truly optimize your construction company’s tax position, it’s crucial to go beyond basic deductions and explore advanced tax planning strategies. Corvee’s tax planning software is designed to help you do just that.
Comprehensive Tax Strategy Analysis
Corvee’s software analyzes over 1,500 tax-saving strategies at both the federal and state levels, identifying opportunities to minimize your tax liability. By considering multiple scenarios and projecting outcomes, you can make informed decisions about your company’s tax approach.
For example, Corvee can help you determine the optimal depreciation strategy for your equipment purchases, weighing the benefits of bonus depreciation against Section 179 expensing. It can also identify potential tax credits you may be eligible for, such as the Research and Development (R&D) Tax Credit for developing new construction techniques or materials.
Multi-Year Planning
Construction projects often span multiple tax years, making long-term tax planning essential. With Corvee’s multi-entity tax planning capabilities, you can understand how changes in one entity or tax year impact your overall tax position.
For instance, if you’re considering a major equipment purchase, Corvee can project the tax implications across multiple years under different scenarios. This holistic view allows for more strategic decision-making and long-term tax efficiency.
Collaboration and Documentation
Effective tax planning requires close collaboration between construction company owners, their financial teams, and tax professionals. Corvee’s client collaboration tools simplify the process of gathering and organizing essential tax documents.
With everything stored securely in one place, you can streamline your tax preparation and ensure thorough documentation in case of an audit. Corvee’s smart questionnaires also help identify key tax planning opportunities and ensure no deduction or strategy is overlooked.
Expert Support
Construction tax laws and regulations are constantly evolving, making it difficult to stay up-to-date and compliant. When you choose Corvee, you gain access to a team of certified public accountants, tax attorneys, and other industry experts.
This invaluable support ensures you’re making informed decisions, staying compliant, and maximizing your tax savings effectively. Corvee’s experts can provide guidance on complex issues like revenue recognition, multi-state tax compliance, and IRS audits.
As a construction company owner, proactively managing your taxes is essential for long-term success. By understanding the unique tax considerations of the industry, maximizing relevant deductions, and leveraging advanced tax planning strategies, you can minimize your liabilities and reinvest those savings into growing your business.
However, tax planning is not a one-time event. It requires ongoing attention and adaptation as your business evolves and tax laws change. Regularly reviewing your tax strategy with your financial team and tax professionals can help ensure you’re always optimizing your tax position.
Corvee’s powerful tax planning software and expert support make this process easier than ever. With comprehensive analysis, multi-year planning, and secure collaboration tools, Corvee empowers construction company owners to make smarter, more confident tax decisions.
At Corvee, we understand the complexities and unique challenges of tax planning for construction companies. That’s why our software is designed specifically to help businesses like yours uncover valuable tax-saving opportunities and stay compliant in an ever-changing landscape.
With features like in-depth deduction analysis, multi-year projections, and expert support, Corvee provides the tools and insights you need to transform your tax strategy. Our state and local tax planning capabilities also ensure you’re optimizing your tax position across all jurisdictions in which you operate.
Ready to take control of your construction company’s taxes and keep more of your hard-earned revenue? Get a free demo of Corvee today and discover how our powerful tools and expert insights can help you minimize your liabilities, maximize your savings, and build a stronger financial foundation for your business.
With Corvee on your side, you can focus on what you do best—delivering exceptional construction projects—while knowing your taxes are optimized for success. Let us help you navigate the complex world of construction taxation and achieve your financial goals faster.
See how Corvee allows your firm to break free of the tax prep cycle and begin making the profits you deserve.
Please fill out the form below.
Fill out the form below, and we’ll be in touch.
Please fill out the form below.
Please fill out the form below.
Please fill out the form below.
