3 Accounting Tips for Construction Companies
Accounting and taxes can be a tricky subject for most small businesses, but anyone working at a construction company should have Advil on hand when it’s time to delve into the financials.
That’s because construction is far from a regular, regimented 9-to-5 business. Construction not only involves multi-month and even multi-year projects, but also dealing with contractors, which offers its own set of headaches.
We want to take some of that accounting stress off your shoulders, though, which is why we’re delving into a few tips for construction companies that should help build up your business and reduce hassle.
Accounting Tips for Construction Companies
1. Know Your Accounting Methods: Construction companies aren’t all built the same, and because of that, they can choose to utilize different accounting methods – and these methods come with different rules concerning tax breaks and incentives. For instance, there’s the “completed contract” method, in which expenses and profits alike are deferred until the contract is completed (or mostly completed, in some circumstances). With this method, you might enjoy deferred income taxes until the contract is complete, but that might end up working against you if tax rates increase by the time you report your income as received. Then there’s “percentage-of-completion,” which uses milestones throughout the project’s life – so, say, at 25% completion, you could report 25% of income and expenses, then repeat at 50%, 75% and 100% completion.
2. Know Your Tax Breaks: Construction companies can be eligible for a number of tax deductions, some of which are pretty inclusive in scope, while others are a bit more niche. For instance, Section 179 allows you to deduct up to 100% of things such as machinery and equipment in the year in which you put it into service. There’s the Section 199 deduction of up to 9% of income “derived from any lease, rental, license, sale, exchange, or other disposition of qualifying production property” in the U.S. Construction companies also can reap credits and deductions for things such as R&D, repairs to tangible property and more.
3. Know Your Friendly Tax and Accounting Experts: Of course, if you don’t have the time to bury yourself in accounting and tax law – and if you’re in construction, time’s probably in short supply – your best bet is to talk to those in the know. The professionals at McManamon & Co. are here for all of your tax and accounting needs. We help small businesses, including construction companies, organize their financials, train their accounting staffs, and of course, prepare taxes. And we can help you understand and qualify for tax breaks, too!
Build a more stable financial position for your construction firm this year by calling McManamon & Co. at 440.892.8900 or contacting us online today!
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