The key to effective tax planning may seem self-evident, but too few companies actually set aside time each year to meet with their tax professional to layout a tax strategy. White Nelson Diehl Evans tax specialists help businesses identify the best tax strategies for construction businesses to minimize tax liabilities.
Many construction companies that have long term projects use the Percentage of Completion Method (PCM) which recognizes revenue as the project progresses. A project that has incurred 50% of estimated project costs recognizes 50% of the project’s total contract price as revenue. For projects that begin at the end of a tax year and are less than 10% complete, all gross profit can be deferred into the next year.
Congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015 which extended, modified or made permanent certain depreciation related tax policies. This Act extended the bonus depreciation for qualified property and new equipment purchased and placed in service during 2015 through 2019. These bonus depreciation tax deductions provide a great tax strategy for businesses with plans to purchase or construct qualified property. There are some limitations and the capital expense must meet qualification requirements.
The Path Act also permanently set the Code Section 179 expensing limit at $500,000 with a $2 million overall investment limit before phase out (both amounts are indexed for inflation beginning in 2016).
Many construction companies are unaware of research and development tax incentives designed specifically for the construction industry or they fail to take full advantage of such R&D credits. Credits such as designing HVAC systems, designing electrical system design, developing and improving construction equipment development are examples of construction activities that may be eligible for R&D tax credits.
Make annual tax planning meetings with your CPA firm a regular part of you business activities. White Nelson Diehl Evans tax specialists have experience and depth in assisting businesses in this industry.