Many construction companies don’t realize how much money they are leaving on the table because of missed tax credit and deduction opportunities. On top of that, mistakes in accounting methods and classifications can cost contractors large sums at the end of the fiscal year. In this article, we will look at three common tax mistakes that can affect a contractor’s profitability.
Tax Mistake #1 – Underestimating the power of tax credits
Unlike a tax deduction, tax credits directly decrease your tax liability. These tax credits often fly under the radar. For example,
- Fuel Tax Credit: This federal tax credit is based on the total number of gallons you use and ranges from 18 to 25 cents per gallon. The credit applies only to the off-highway business use of gasoline in machinery and trucks and the use of undyed diesel fuel. Construction firms that accurately track their use throughout the year will benefit the most. If your unsure how to accurately track this, contact one of our professionals.
- Research & Development Tax Credit: This program allows companies to receive a tax credit for qualifying innovative products and processes. Firms that want to be ahead of the curve and prepared for potential legislative mandates around tech-enabled, environmentally friendly systems can talk to our tax professionals about how this credit can offset costs.
Tax Mistake #2 – Failing to take all the deductions available to you
Restrictions and complicated schedules often lead contractors to take a conservative approach to business deductions. Tracking and qualifying travel, small items, and training deductions without the assistance of a tax pro is feasible, but when it comes to asset and manufacturing deductions like Section 179, Qualified Business Income Deduction (QBID), and bonus depreciation, construction firm owners can quickly lose their confidence. The benefit of working with an accounting professional is gaining the peace of mind that you have left no stone unturned.
Tax Mistake #3 – Misclassifying employees
Filing employees inaccurately can cost you a hefty penalty. When you file a worker as a contractor (1099), you avoid paying a portion of taxes and unemployment insurance. Owners often use this strategy to avoid paying more in taxes. Still, the penalty for misclassifying can wind up costing you more in the long-term and invite the opportunity for a company audit. To be truly classified as a 1099 contractor, workers must be hired independently and have control over their job’s completion.
Navigating the complex technical landscape of business taxes is usually a job best left to the experts. Why? A construction firm stands a better chance of staying compliant when they work with an expert that understands the nuances of the construction industry. To stay on top of the various cost outlets, unique pricing models, and revenue methods that exist within a nonstandard business like construction, it is imperative to have a year-round relationship with a trusted advisor. The professionals in our office can help you accurately document and track your purchases, so your financial statements are in order, and you don’t miss out on tax incentives.