Economic and population growth is fueling 6% expansion and an additional 400,000 jobs in the construction sector over the next eight years. There is always a need for specialists in the building of roads and other infrastructure, and the spaces where we live and work, especially as our communities grow and evolve. In our 70-year history, we at O’Donnell, Ficenec, Wills & Ferdig are privileged to have built out a niche in this essential industry. We like to think that when we help to keep construction firms moving, they can then best help to keep the places that we call “home” moving forward!
We also appreciate that construction firms are not “standard” businesses as it relates to accounting for their accounting! To begin with, we intimately understand that our contractor-partners truly “live and die” by schedules and projects. It is easy to become so wrapped up in putting out fires, that the proper tracking and monitoring of financials can take an unfortunate back seat. We are proud to aid in mitigating the risks that are associated with not keeping the books up to date, no less characterized by assuring the “lights are kept on,” the bills are getting paid, and that your team, too, is getting paid. Worse yet, poor management on this front provides ample opportunity for more nefarious types to take advantage of the situation. Fraudulent activities can go undetected for far too long.
Our team at OFWF also truly embraces the unique nature of the construction space. We know that a firm’s mobility and remote site work brings additional tax/accounting complexities and regulatory compliance requirements to the fore. Additionally, we acknowledge that construction firms often “break the mold” as it relates to varied cost “outlets,” such as travel and delivery. We don’t simply shoehorn these firms into typical accounting models. With custom approaches and knowledge of the industry, we assure that revenue is tracked completely, and properly recorded and reported. In doing so, penalties and other negative consequences of failing to comply (i.e., the reputational or brand “hit”) with requirements are avoided. There are also considerable opportunities for the firms that we work with in the industry to save money come tax time.
Mind your deductions
We’ve isolated some of the deductions that will likely most resonate with construction companies below:
Travel – Significantly, potential cost-savings here may apply to transportation when going from site to site, or when meeting with clients. Any other travel that is related directly to the work, be it delivering materials or running down tools, should also be accounted for when tracking mileage and associated rebates.
Assets – Our construction clients often are qualified for both immediate and depreciated asset-related deductions. To the former, these deductions include the likes of vehicles, salaries, tools and supplies (with shorter lifespans), and marketing and branding. To the latter, relevant assets are those that depreciate in value over time; for instance, heavy machines or highly durable tools. These should be deducted over the long haul.
No item is too “small” – The category of “small deductibles” includes accounting for products and supplies such as professional (steel-toed) boots, hard hats and like safety equipment.
Training and professional development – Anything that is in some way related to readying or elevating the skills of your workforce may be fair game here. We encourage our clients to consider the costs associated with not only schooling and certificates, but also commonly-overlooked items that are still education-related. These include materials like trade journals, industry and technical books, membership fees to valuable associations and so on.
We’ve also highlighted some of the deductions that are written into the tax code and still apply to the tax year (i.e., they were extended or made permanent) below.
Section 199A (Qualified Business Income or QBI)
As referenced, we at OFWF like to stay abreast of the latest in the construction industry. For instance, the Associated General Contractors of America is advocating for Section 199A to be made a permanent deduction for pass-through businesses. This deduction was originally introduced with the Tax Cuts and Jobs Act of 2017. It is available to construction firms organized as pass-throughs. At present, the deduction expires around three years from now (in 2025). As the AGC notes, this incentive provides a competitive edge to the majority firms organized as pass-throughs. Without it, they contend, these organizations would be at a significant disadvantage to C-Corps.
QBI largely refers to your firm’s net profit. Exclusions include certain types of business income, such as capital gains, losses, dividends, interest income and income earned outside of the United States.
WOTC (Work Opportunity Tax Credit)
Designed to encourage employers to hire certain groups that have historically faced barriers to employment, the WOTC may be applicable as a tax-saving strategy to your situation should you hire individuals:
Who receive temporary assistance due to their economic circumstances (i.e., recipients of benefits via the supplemental nutrition assistance program)
Who are designated as “qualified military veterans”
With “service-connected” disabilities
With physical or mental disabilities
Who are qualified ex-felons as noted by IRS stipulations
The WOTC has been extended through 2025.
Section 179D (for energy efficiency)
Don’t miss out on this often-overlooked deduction for energy-efficient commercial properties! Owners like you may be able to claim this incentive if you have invested in three different energy-efficient categories: lighting, HVAC (and hot water systems) and “building envelope.” The deduction is valued at up to $1.80 per square foot for applicable improvements to either new or existing commercial properties, as well as some qualifying residential rental structures.
Last but not least …. Miscellany!
Look, we understand that few are as savvy when it comes to supply management than those in the AEC space; however, we encourage you to stock up while you can on deductible assets -- even if you don’t use them until ‘22 or beyond (though, in this environment, that scenario is unlikely!). Also, consider making repairs while they are deductible as, conversely, capital improvements are depreciated. In this manner, you can boost your deduction. Furthermore, it pays to revisit the latest regarding Coronavirus Tax Relief, which may be relevant to your situation, and any other programs that may be applicable to your operations and workforce.
Notably, do not fall prey to costly misclassification of employees. Partly due to the unique nature of construction employment and project-based work, owners can become confused as it relates to employee filing. A worker that is a true “contractor” (and, thusly, filed under a 1099), must be onboarded independent of your other employees in the workforce. Review the criteria for the self-employed (versus employees) to avoid the substantial penalties associated with failure to properly file workers and, in turn, to pay related taxes and unemployment insurance. Moreover, you don’t want the IRS looking with greater scrutiny at the entirety of your return. That’s an awful lot of pressure and stress while working within a busy pipeline of projects, and all the stressors that go along with the present challenging and competitive climate for operating a business.
Throughout, we’ve provided links to a number of resources that you can trust; however, let us be your ultimate resource and partner! After all, that is what we are here for and we have the depth of experience in the construction space to assure your financials are managed completely, accurately, and in a timely manner, and that no opportunity for tax savings or for compliance reporting is left unturned. Our team looks forward to hearing from your team.
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