1) You Need An Accountant That Understands Construction

Accounting for construction companies requires different practices than accounting for standard businesses. For starters, construction businesses often work remotely on-location at various sites. The mobility of these businesses introduces new tax and accounting complexities that need to be accounted for to stay tax compliant.

Not only do constructions company monitor different cost outlets (i.e., travel, mobilization, delivery, etc.) but construction companies may use unique pricing models and revenue calculation methods that don't fit into a typical accounting model.

It's mission-critical that construction companies work with a tax specialist to ensure that all revenue is being tracked, recorded, and reported appropriately — which will lead to more compliant (and often more significant) tax statements.

2) Pay Attention to Common Deductions

To make the most of each return, construction companies should pay attention to the common deductions within the construction industry. The most common deductions for construction companies include:

• Travel : This is usually the most significant deduction for construction and includes time spent traveling from location-to-location, traveling to meet clients, and any other travel that was directly work-related (tool runs, material delivery, etc.) The current rebate for this mileage is 54.5 cents per mile.
• Asset Deductions : There are two types of asset deductions that construction workers typically qualify for: immediate and depreciated. Immediate deductions are for assets such as cars, trucks, salaries, tools with a short lifespan, supplies, materials, and marketing. Depreciated assets include long-lasting tools like heavy machinery or long-lasting tools, which you can deduct over a long period of time.
• Small Deductibles : Small items like steel-toed boots, clothing, hard hats, and other construction-specific equipment can be used as deductions.
• Training : These are deductions for school, certificates, or even learning materials (i.e., journals, membership fees, etc.)

Let's go over some examples.

Travel example : If you traveled 500 miles throughout the year from location-to-location (note: this does not include commute time) you can claim a total of 54.5 cents per mile, which equals $272.50.

Immediate asset example : If you were to purchase a new truck that was work-specific, you could deduct a percentage of that truck immediately. You would only receive a deduction on this vehicle for this tax year.

Depreciated asset example : If you were to purchase a $10,000 piece of heavy equipment, you can itemize that deduction as follows:

• Subtract $1,000 from the value of the itemization on years 1 - 4.
• On year 5, you would receive $5,000.
• On year 9, you would receive the final $1,000.

Small deductible example : If you purchased hard hats and work-specific clothing for your construction team, you can deduct those from your taxes.

Training example : If you had to purchase training classes, new certifications, or supplementary training materials, you could deduct those from your taxes.

3) There's a Difference Between Business Assets and "Mixed-Use" Assets

Most small businesses couple assets as both work and "play." These are considered mixed-use assets, and they give smaller deduction percentages than strictly business assets. So, if a construction company supplies cellular devices that are used both at-work and at-home, these are mixed-use assets.

Common mixed-use assets include:

• Cellular devices
• Some clothing
• Vehicles



You can only deduct the percentage of business-use from these assets instead of the entire asset.

4) Understand the "Kiddie Tax"

A common tax shelter for family-owned businesses is dividend-sprinkling throughout the family. Under new laws, any college-aged (under 24) family member will be taxed at their parent's marginal tax rate — unless they earned at least half of what the parent earned. It's crucial that families who use dividend sprinkling as a tax shelter adjust their plans accordingly.

5) Take Advantage of the Section 199 Manufacturers Deduction

The Section 199 deduction was proposed to encourage domestic manufacturing. However, current updates to the bill have expanded the deduction to include businesses engaged in construction, engineering, and other activities. This tax break can save construction businesses up to 9% on their taxes — which can be a significant boon for small businesses facing strict tax rates.

6) Understand How Your Materials are Taxed

In some states, construction workers are charged a general sales tax on materials, which is usually preferable since construction companies can easily make up this tax on markups. However, other states treat construction workers as material "resellers." This means that construction companies will be charged a higher tax rate since it's assumed that the material will be marked up.

7) Make Sure That You Identify Employees Correctly

Some construction companies get confused when it comes to filing employee under a w-2 or 1099. While filing all employees under a 1099 may seem tempting, it can land you in a load of trouble. For a worker to be considered a "contractor", they must be hired independently from all other workers, and they must have control over the job's completion.

Since filing employees under 1099 doesn't require businesses to pay a portion of taxes and unemployment insurance, many construction companies use this to avoid paying significant employee taxes. Unfortunately, the penalty for these instances can often be thousands of dollars per employee — not to mention the added pressure from the IRS, which may manually pour over your entire return.

Make sure that you're filing employees appropriately and accurately. While you may pay more upfront, your long-term savings will likely be a net positive from avoiding fines and IRS inquiries.

Final Thoughts

Working in the construction industry requires careful attention to tax details. Some construction businesses prefer to hire an accountant or tax specialists to help them secure the highest possible return.

If you're looking for an accountant and tax specialists who understand the intricacies of construction, contact Wayne W. Stanforth online or at 860-628-4995. Our firm may not know how to plan construction projects, but we can certainly help you run your business.