If you are a small business owner in the construction industry, you know how challenging it can be to manage your finances and taxes. There are many rules and regulations that apply to your business, and you want to make sure you are taking advantage of all the tax benefits available to you. That’s why working with a CPA who has expertise in the construction industry can make a big difference for your bottom line. A CPA can help you with various aspects of your accounting and tax planning, such as:
Choosing the Right Business Entity for your Construction Business
Depending on your situation, you may benefit from operating as a sole proprietorship, a partnership, an LLC, an S corporation, or a C corporation. Each entity type has its own advantages and disadvantages in terms of liability protection, tax treatment, and administrative requirements. A CPA can help you weigh the pros and cons and choose the best option for your business goals.
Taking Advantage of all Applicable Deductions for Construction Business
There are many expenses that you can deduct from your taxable income as a construction business owner, such as:
Materials:
You can deduct the cost of materials that you use for your projects, such as lumber, concrete, nails, etc.
Equipment:
You can deduct the cost of equipment that you use for your business, such as tools, machinery, computers, etc. You can either deduct the full cost in the year of purchase (if it qualifies for Section 179 or Bonus) or depreciate it over its useful life.
Subcontractor costs:
You can deduct the payments that you make to subcontractors who perform work for your projects, such as plumbers, electricians, painters, etc.
Wages:
You can deduct the wages that you pay to your employees who work for your business.
Vehicles:
You can deduct the expenses related to using vehicles for your business, such as gas, maintenance, insurance, etc. You can either use the standard mileage rate or the actual expense method to calculate your deduction.
Having a Depreciation Plan for your Assets
Depreciation is a way of spreading out the cost of an asset over its useful life. This reduces your taxable income and lowers your tax bill. However, depreciation rules can be complex and vary depending on the type and use of the asset. A CPA can help you determine the best depreciation method and schedule for your assets and ensure that you comply with the IRS requirements.
For example, Section 179 allows you to deduct the full cost of certain assets in the year of purchase, instead of depreciating them over time. This can be a great way to reduce your taxable income and save on taxes. However, there are limitations and restrictions on what assets qualify for this deduction and how much you can deduct each year, as well as considerations regarding how you purchased the asset and your cash flow situation.
Structuring Employee Compensation Strategically
How you pay your employees can have a significant impact on your taxes and cash flow. Understanding the difference between employees and subcontractors is the first step, followed by understanding your seasonal cash flow needs. You need to consider wages, bonuses, commissions, benefits, and more to figure out the compensation that allows you to hire the best people while keeping your business profitable. A CPA can help you design a compensation plan that is beneficial for both you and your employees.
Keeping Accurate Records of your Income and Expenses
One of the most important things you can do to save on taxes is to keep track of all your income and expenses throughout the year. This will help you prepare accurate tax returns and avoid penalties and audits from the IRS. A CPA can help you set up a bookkeeping system that suits your needs and provide monthly reports and analysis of your financial performance.
Working with Haworth & Company, Ltd.
If you are looking for a CPA who can help you save on taxes for your construction business, look no further than Haworth & Company, Ltd. We are a small business accounting firm with over 30 years of experience in providing accounting, tax, payroll, and consulting services to small businesses in Minneapolis/St. Paul and Southeastern Minnesota.
We offer comprehensive service packages that include everything you need to manage your finances and taxes effectively. For a fixed monthly fee, we will handle your accounting and bookkeeping, prepare your income tax returns, process your payroll, and provide consulting advice. We are more than just accountants. We are your trusted advisors who will help you make smart decisions for your business. Contact us today to schedule a free consultation and discover how we can help you run a better construction business.
Disclaimer: This blog content is for general informational purposes only, should not be considered professional advice, and does not establish a client relationship. Haworth and Company is not liable for the accuracy of this information or the content of external links. Please use this information at your own risk, ensuring it suits your specific needs, and consult with a certified tax professional for your own personalized guidance.
