Modern Home Builder - Winter 2016 - Volume 2 - 9
For instance, the cash accounting method is not permitted
for partnerships and some C corporations. If your business is
a C corporation with more than $5 million in annual gross receipts, you will need to avoid cash accounting. Construction
business owners with more than $1 million in gross income
should avoid this method as well if they spend more than 15
percent of their total income on materials.
Once your type of organization and allowable accounting
methods are determined, it is important to remain consistent
and diligent with all of your reporting. Much of the financial
landscape within the construction business contains virtual
landmines that can blow up your books if you are hit with a
tax or fine that wasn't expected. However, a well-advised construction business owner will be able to take advantage of certain provisions in the tax code as well.
Here are some of the benefits worth pursuing:
TAKE ADVANTAGE OF BONUS DEPRECIATION
Bonus depreciation allows for a 50 percent deduction for new
fixed assets placed into service through the end of this year.
The remaining value of the asset is eligible for deductions over
its normal useful life. New property with a depreciable life of
20 years or less generally qualifies for this. Any construction
equipment that lasts five years (the most common tax life for
construction equipment) still qualifies.
of fixed asset costs, provided less than $2 million of assets are
placed in service throughout this year. Unlike bonus depreciation above, this applies to both new and used equipment. However, this deduction cannot be taken if the business is already
in a loss position.
MAXIMIZE SECTION 199 DEDUCTIONS
How would you like to reduce your effective federal tax rate
by more than three points from a maximum of 39.6 percent to
36 percent? The Section 199 Domestic Production Activities
Deduction might be the solution for you, but beware - it can
be tricky. This incentive allows taxpayers to deduct 9 percent
of qualifying production activities, including construction or a
substantial renovation, which would bring your burden down
to 36 percent.
Tax law is uniquely complex, but if managed properly
it can pay big dividends for those in the construction
Bradford L. Hall, CPA, is the managing director at Hall &
Company CPAs, an accounting, tax and consulting services
firm in Irvine, Calif. He has more than 30 years of experience
in public accounting and is actively involved in all aspects
of taxation, auditing and business planning. Brad's core
strengths as a CPA are in the areas of strategic tax planning
for high net worth individuals, including business owners and
DEDUCT USED EQUIPMENT
executives, closely held corporations, partnerships, LLCs and
Rules originally intended for small businesses were expanded
significantly to allow contractors to expense up to $500,000
trusts. To contact Brad directly, call 949-910-4255 or email
Winter 2016 Volume 2 www.mhb-magazine.com