The close
of a tax year marks the end of a financial chapter for contractors, but it
doesn't mean the opportunity for effective tax planning is over. For contractors
in the United States, post-year-end tax planning plays a pivotal role in
managing liabilities, ensuring compliance, and identifying opportunities to
maximize tax savings. By taking proactive steps and reviewing key tax
considerations, contractors can make well-informed decisions to reduce their
tax burden and plan strategically for the year ahead.
HLBGC can provide post-year-end tax planning strategies to help contractors minimize taxes, comply with regulations, and set themselves up for success. Below are a few ways to accomplish this:
1. Take
Advantage of Tax Credits
a. Research & Development (R&D) Credit - Many contractors may be eligible for the R&D tax credit. Small contractors may claim a portion of the total credit as a payroll tax credit against the employer's portion of Social Security taxes. Additionally, purchases of machinery, equipment, and other items used for R&D purposes may be exempt from sales and use tax or taxed at a reduced rate. Property used in R&D may also qualify for a property tax exemption.
b. Section 45L Tax Credit for Energy-Efficient Homes - The Section 45L tax credit applies to homebuilders and developers of energy-efficient residential properties. This tax credit can be worth up to $5,000 per dwelling unit for each qualified new energy-efficient home.
c. Maximize Depreciation Opportunities - Tax planning should include verifying whether the business has fully leveraged depreciation provisions. For contractors that purchased new equipment, machinery, or property, it's essential to ensure they have claimed Section 179 or bonus depreciation to maximize deductions. For 2024, the maximum Section 179 expense deduction is $1,220,000, while the bonus depreciation allowance is 60% for certain qualified property.
2.
Review State and Local Tax Updates
a. Review Nexus and Apportionment Rules - Ensure compliance with nexus rules, which determine whether a business has sufficient presence in a state to be subject to its taxes. Also, review apportionment rules to ensure income is allocated appropriately among states.
b. State-Level Tax Credits - Many states offer tax incentives for hiring, investments, or research activities. For instance, Georgia provides popular business tax credits, such as the R&D tax credit and the retraining tax credit. Be sure to explore available incentives in your state.
3. Plan
for the Upcoming Fiscal Cliff
As the
2025 tax fiscal cliff nears, construction companies face challenges such as
higher tax rates, reduced deductions, and stricter filing requirements,
requiring proactive planning to protect profitability.
a. Key Changes Impact - The phase-out of 100% bonus depreciation and stricter ยง163(j) interest expense limitations will force contractors to reassess capital investments and financing strategies.
b. Consider the Impact of Pass-Through Deduction - The reduction or elimination of the Section 199A Qualified Business Income pass-through deduction and increased multi-state tax compliance complexity highlight the need for expert, industry-specific tax guidance. This can have a significant impact on reducing taxable income and should be carefully evaluated.
Post year-end tax planning is an excellent opportunity for contractors to optimize their tax positions, comply with regulations, and identify opportunities for savings. By conducting a thorough financial review, leveraging deductions and credits, and planning for the future, contractors can take control of their tax obligations and set themselves up for success in the coming year.