Did you know the federal tax rates are the lowest for public construction firms? After working as a construction business CPA in San Francisco for decades, I have noticed how companies try to save on taxes. Especially in the post-pandemic era, every company strives to hold on to extra cash while they can. Many construction companies that I have seen pay a hefty amount on tax. But what if I tell you, this does not have to be the case?

Yes, construction firms have multiple tax write-offs when tax returns are filed. Sometimes high taxes can put you in a difficult position to pay good wages. Since you have also realized the importance of tax savings, how do you achieve it? Without further ado, I will highlight five tax-saving hacks for construction firms.

Understand 179D Incentive

Eligible builders and contractors can claim a tax deduction of up to $1.80 per foot only by installing appropriate energy-efficient systems.

179D projects must fulfill wage and labor requirements to gain the bonus rate. The tax deduction also allows HVAC improvements and interior lighting solutions.

Look Up the Right Accounting Method

Cash and accrual are two accounting methods that most construction companies use. Figure out the differences between these two accounting methods and understand which one suits better. Additionally, If you can reliably track your project’s progress and accurately estimate costs, using the percentage of completion method could lead to significant tax savings

Learn about Research and Development Tax

The R&D tax credit applies to businesses developing processes or technologies, manufacturing products, and upgrading existing ones. So, a construction firm can benefit from the R&D tax credit by filing for research and development linked to building and construction.

If the engineering activities qualify for a research and development tax credit, you can consider filing amended returns to get the previous year’s credit.

Keep the Cost of Equipment and Supplies in Mind

The cost can be deductible if you buy any equipment in the year of tax. Saws, hammers, and drills usually fall into this category. In addition, maintenance costs of the equipment in the year can also be deducted.

Check Depreciation Value on Assets

One of the common ways construction companies lower taxes is through depreciation write-off provisions. If you have new machinery worth millions, these assets can get written off (Section 179).

Usually, the assets would be in for use for several years and will eventually depreciate with time. Though depreciation rules can be challenging to understand, you can save time and extra cost once you get a hang of it.

On a Concluding Note

Using these tax-saving strategies for construction businesses, you can reduce your taxable income and start saving on taxes.

You can further contact me before making any decisions. Remember, saving on tax bills will help you reduce your overall bill. So, take full advantage of all the options available!

Visit the website to know more: https://www.bastacpa.com/tax-guide-for-construction/