Year End Planning for Construction Companies

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As the end of 2016 quickly approaches, it’s essential for construction companies and contractors to review their financial situation and operations to identify immediate tax savings opportunities – especially as some popular tax incentives may be disappearing in future years. Conducting a comprehensive assessment of the company’s expenses and activities, including material purchases, equipment leases and purchases, new vehicles and so on, can often reveal steps you can take to realize tax saving opportunities. To help clients, prospects and others with year-end planning, Wilson Lewis has provided a brief summary of the most common incentives below.

Common Construction Tax Incentives

• Section 179d Deduction – This tax deduction is available to companies involved in energy efficient construction. Designed to encourage “green construction”, it allows the construction company, sub-contractors and even architects to claim deductions of up to $1.80 per square foot on qualifying projects. It’s important to note that the deduction can only be claimed if certain energy saving systems are installed and energy cost reductions are achieved as a result.
• Section 199 Deduction – Although widely known as a tax break for manufacturing companies, it has been established that construction companies and contractors are considered manufacturers for purposes of this deduction. This means that a 9% tax deduction can be taken on activities deemed to add value to a property, extend its useful life or make it suitable to use for another purpose. There are several criteria that must be met in order to leverage this deduction, but at 9% the saving is worth investigating.
• Research & Development Tax Credit – Construction companies and contractors are frequently able to qualify for this tax credit depending on the type of activities conducted during the year. Generally speaking, companies can qualify for the credit if they conduct activities that result in a new or unique construction process or create new or unrealized efficiencies. There are several criteria that need to be reviewed and meet, but this is an incentive that many industry companies have leveraged and benefitted from.
• Vehicle Expense Deductions – Most construction companies have at least one vehicle that is used by employees to haul equipment, move materials or visit various project sites. The good news is that if the company owns or leases vehicles for these purposes, then they are able to deduct a percentage of the cost. The deduction is based on the business use of the vehicle as well as other factors, such as the cost of gasoline, oil, etc. There are several IRS regulations that must be met, so maintaining detailed records is vital.

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It’s important to take action now as the end of the year is quickly approaching and some tax incentives are not guaranteed to be around next year. Even if your construction company or contractor business doesn’t qualify for these incentives, it’s essential to work with an experienced tax professional that can help you leverage other available benefits. If you have questions about year-end tax planning or other tax and accounting concerns, Wilson Lewis can help. For additional information, please call us at 770-476-1004 or click here to contact us.