Construction companies often have to deal with large expenses for materials, tools, the use of vehicles or any potential business costs they may need to support without being able to charge their clients for them. The good news is that, in many cases, these can be written off so that you'll pay a lot fewer taxes at the end of the fiscal year than you'd normally expect. Here are a few of the ways your construction company can take advantage of tax breaks and, more importantly, save money.
Partial and Complete Business-Related Expenses
The IRS will usually allow you to claim deductions on "ordinary and necessary expenses". Ordinary Expenses are expenses that are common to a particular industry, while necessary expenses are helpful to the business. In the construction world, these may refer to power tools, trucks or other equipment your employees will need to do their job.
Partial deductions can also apply to the use of personally-supported services for business purposes. For instance, if your company issued company-owned cell phones, you may deduct the costs of both your carrier plan and the phones themselves. Additionally, if you regularly travel from job site to job site, you may be able to deduct for miles and gas expenses incurred during those trips. However, you may not deduct your drive to work from home, or vice versa. If you intend to deduct auto expenses, make sure to keep careful records to ensure that you are maximizing your deductions, and reducing your out-of-pocket expenses.
Keep in mind, however, that if you pass along the expenses for these or any related items on to your clients, you will not be able to claim the costs for these items come tax time. It is important to consult with a tax professional to help you weight your options.
Accounting for Depreciation
An important part of selecting deductible expenses has to do with depreciation. The concept of depreciation describes the rate at which the value of a specific item (such as a truck or an old construction tool) diminishes over time.
The IRS will allow for tax deductions calculated on the depreciation of business assets. Whether you own an old jackhammer or a vehicle you used 30 years ago when you started your business, you can get specific deductions on your aging item. There are several ways to calculate depreciation, all of them are very complicated. Again, consulting with a licensed, experienced tax professional can help both prevent you from the costly process of correcting a tax error, and ensure that more of your money is going into your business than to the IRS.
Cost of Doing Business
While it may seem obvious that you can deduct expenses like equipment and transportation costs, there are other expenses that you can deduct that may not seem so obvious. For instance, not only can you deduct the cost of any advertising collateral your business may use, you can also deduct the cost of hiring the contractor or agency that designed them for you.
You can also deduct your company's business insurance premiums. However, you may not deduct any expenses from personal health, auto or disability insurance, unless you are considered self-employed. Even in that instance, though, there are certain criteria that you must satisfy.
Additionally, you may partially deduct (usually 50%) any expenses related to travel, meals, entertainment, etc. Only in certain circumstances may you deduct any of these items fully.
Consult a Tax Professional
In order to take advantage of these deductions, you should always consult a professional who both knows what deductions are applicable to your business, and who knows what criteria to meet in order to save you the most on your taxes and prevent the headaches of being audited.