- Tax planning now can mean a smoother tax day.
- The 2018 Tax Cuts and Jobs Act could significantly affect your taxes this year.
- Setting up retirement accounts for you and your employees can save on taxes.
Tax day may seem far away now, but it always sneaks up quickly. That’s true no matter when your company’s year end falls. The sooner you do some tax planning, the more easily tax season will go for you and your company, and the more likely it will be that you pay the least amount of taxes possible.
Here are a few tax tips for your construction company to consider this upcoming tax season.
Understand the tax implications of your business structure
The 2018 Tax Cuts and Jobs Act made some sweeping changes that may significantly affect certain types of contracting companies. As a result of this tax reform legislation, sole proprietorships, partnerships, owners of an S corporation, and members in an LLC or LLP may qualify for a 20 percent tax deduction. If you own a C corporation, you may also pay lower taxes this year.
Take advantage of big ticket item asset depreciation
“New tax rules allow businesses to deduct the full amount of the purchase price of equipment up to $1 million for qualifying purchases the year of purchase,” says Darrel Yashinsky, president and founder of the Pinnacle Contractor Group, which has provided tax planning advice to the construction industry for 20 years.
“This tax break could change in the future, so take advantage while you can,” he advises. “Qualified assets include machinery, equipment, off-the-shelf computer software and certain improvements to nonresidential real property.”
Be advised of eliminated tax deductions
If you’ve been getting substantial tax deductions for entertainment and meal expenses, that won’t be the case this tax season. The 2018 tax reform completely eliminated deductions for entertainment expenses. Additionally, a company can only deduct 50 percent of most meal expenses.
Examine costs and budgets in these areas and consider making cuts to offset the difference, if you haven’t already.
Check your records
Hopefully you’ve been keeping good records of all expenses so that you don’t miss any potential deductions. Even if you are keeping excellent records, it’s a good idea to recheck and make sure that you aren’t missing any deductions.
If you’re unsure if an expense is deductible, consult with your accountant or tax preparer. Every deduction counts when it’s time to pay taxes.
Open or contribute to an existing retirement account
If you require more write-offs, opening a retirement account or contributing to an existing one is an ideal option. As a business owner, you have more options than a personal IRA. You can choose from several types of accounts, some of which can also be offered to your employees.
Employer-sponsored retirement savings plans include a SEP IRA, SIMPLE IRA, 401(k) and defined pension plans. All of these plans differ as to the amount the employer and employees can contribute. There are also various investment options within the plans. Some of the plans are easier to set up and maintain than others.
Most plans should be tax deductible for you and your employees. Your company may even get a tax credit for implementing certain retirement plans.
Because of the various differences in the plans, it’s a good idea to consult with your accountant as to the best option for you and your business.
Complete taxes early and plan ahead
The sooner you know your tax situation, the better able you are to set up tax savings to ensure that you can easily come up with any taxes due. This will help you prevent cash flow disruptions, which can be detrimental to the business.
If you find that the amount of your taxes owed is higher than you anticipated, consider tapping into a line of credit or opening up one. To avoid this issue next year, make quarterly estimates of taxes.