With capacity challenges, extreme inflation, and the recent economic slowdown, builders are dealing with a lot of things that eat into profits. This is why it’s essential to search for every tax savings opportunity available. This blog will delve into a few opportunities you should be aware of so you can get the savings you deserve as someone in the construction business.
Income Deferrals Specifically for Construction
There are several provisions in the Internal Revenue Code for construction owners that allow you to defer taxable income for later years. A few of these include gross profit on contacts, gross profit on multi-family contracts, gross profit on home contracts, and cash basis and completed contract methods for small contractors.
Important Tax Law Changes
With bonus depreciation, taxpayers can accelerate deductions of capital investments for things like vehicles and equipment. The business interest expense limitation also limits deductible interest for those with receipts of more than $26 million. As of 2022, you can no longer add deductions for tax depreciation and amortization when calculating adjusted taxable income, which is important to know for those with large amounts of debt.
R&D Credits
Construction companies that provide design services or who use alternative and new construction methods and materials can claim a special tax credit for research and development costs. As of 2022, R&D expenses have to be amortized and capitalize over five years, which limits the number of expenses that can be considered when doing the calculation for this credit.
There’s also another thing to keep in mind with this particular tax credit. Claiming this credit without support to back it up can land you in hot water. The IRS has chosen to focus on these credits so an R&D study must be performed before you decide to take this credit.
Energy-Efficient Home Credits
For those who construct multi- and single-family homes, meeting certain requirements about energy efficiency can also give you tax credits. These range from $500 to $5,000 for each unit, depending on the amount of energy savings made by the unit and the wage requirements.
There is no specific maximum when calculating this credit. This means both small and large construction companies can make some money back when building homes that are good for the environment and our future.
Local and State Taxes
Federal taxes should be considered, but don’t forget the ones on a state and local level. Keep in mind that these will vary so talk to an experienced accountant to determine the best credits to be aware of. Common options include job credits and entity-level taxes for pass-through entities.
Why Choose Venture CPAs for Your Business Tax Needs
Venture CPAs offers full-service accounting for businesses in Denver, Aurora, and other parts of Colorado. We offer accounting and business consulting, and tax services. Our professional accountants carefully prepare and analyze financial records to help you make the best business decisions. If you’re looking for the best tax strategies, reach out to us today.
