Now that tax season is in full swing construction company management and owners are seeking additional ways to reduce overall tax liability.
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While there are a number of general business deductions and other incentives available often times they can be overlooked leaving savings on the table. During this time of year when meeting with our construction companies clients, we remind them of the common deductions to ensure they claim available incentives. Whether the focus is on residential, commercial, highway or other construction activity, there are common deductions everyone should know about. To help our clients, prospects and others leverage every possible deduction; Hanson & Company has provided a list of the most common available.
Common Tax Deductions
Vehicle Expenses – Most construction companies have one or several vehicles which are used to haul equipment, move materials or by employees who need to visit various project sites. The good news is that if the company owns or leases vehicles for these purposes then they are able to deduct a percentage of the cost. The deduction is based both on the business use of the vehicle and other factors such as the cost of gasoline, oil, etc. It is important to note that IRS regulations can be tight, so it’s important to keep good records that will help establish usage as business related and not otherwise.
Travel/Entertainment Expenses – Business owners may also deduct business related travel expenses such as airfare, taxi and hotel expenses and the cost of meals during the trip. Beyond this expenses related to entertaining a client, customer or prospect can also be deducted at 50% of the cost of the expense. This means that if a business owner takes a client to a NFL game where tickets cost $1,000 they are able to deduct $500 of the expense. There are some rules governing which expenses qualify so it’s a good idea to keep detailed records.
Section 179d – This deduction is especially useful to construction companies because it provides a compelling benefit on equipment and other purchases. Rather than being forced to capitalize such expenditures they can now be immediately expensed resulting in immediate tax savings. Qualifying purchases includes equipment that has a gross vehicle weight of over 6,000 pounds. Examples include road graders, backhoes, excavators, dump trucks and cement mixers. Other qualifying purchases include office machines, off-the-shelf software and any personal property used in the business. It’s important to note that the definition of a purchase includes equipment financing as well.
Health Insurance Premiums – For years companies have been deducting the cost of employees’ health insurance premiums. However, recent changes to regulations have made this an area of interest for smaller contractors. Now self-employed contractors can make a 100% deduction of health insurance premiums for themselves, spouse and dependents (which can extend beyond just children). This change opens the door to new tax savings for smaller companies.
Retirement Contributions – Of course retirement contributions for an individual taxpayers is deductible. However, did you know that companies can also deduct payments made to an employee’s qualifying retirement plan? While there is generally a limit on the amount a company can contribute to an employee’s retirement, this amount can be deducted for additional savings. Self-employed business owners can enhance their savings since they can deduct contributions made as late as April 15th.
Whether your construction company manages multiple million dollar projects or are a self-employed contractor, there are many tax saving incentives available. Unfortunately, these can be overlooked leaving savings on the table. If you have questions about your company’s tax saving opportunities, Hanson & Company wants to help. For additional information please call us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.