![]() ![]() ![]() Should the people working on your jobs be issued a w-2 or a 1099? This question causes confusion for employers across the board, but especially for those in the construction trades. Misclassifying employees as independent contractors If the deduction is taken on non-qualified activities, a restatement of taxable income may be required in future years, and the additional taxes due may also be subject to penalties and interest. Proper tracking of revenue from various construction services (and the expenses that go along with it) is critical. You would not need to segregate the different business segments like the above example. In most cases with this example the deduction would be based on the entire company's allowable revenue and expenses. The DPAD would be based on the sheet metal contracting part of the company so the respective revenue and expenses would need to be broken out in order to calculate the deduction.Ī company whose entire business is construction of commercial buildings and nothing else is an example of a non-qualified production activity. These will help you distinguish between qualified and non-qualified production activities.Īn example of a qualified production activity might include a company that is an installer and servicer of HVAC units and also is a sheet metal contractor. To make sure the credit is taken accurately, it is generally a good idea to invest some effort ahead of time to have the proper cost accounting mechanisms in place. The deduction is based on 9% of “qualified production activities income” from U.S. “DPAD” is a little-known method to decrease taxable income that doesn’t pertain to all industries however, construction companies are one of the few that do often benefit. Overlooking the domestic production activity deduction The credit is based on total number of gallons used and can range from 18 to 25 cents per gallon. To take advantage of the fuel credit, your company’s use of these two types of fuels should be tracked throughout the year. the off-highway business use of gasoline in machinery and trucks.The credit applies to various types of fuels, but the two that normally pertain to contractors are : This particular credit is for federal taxes paid on fuels. More valuable than a tax deduction, a tax credit of any kind is a direct decrease of your tax liability. Either they are unaware that it exists or are unsure if they qualify for it. This allows for an immediate 50% tax depreciation expense in the year of purchase on certain property, plant and equipment purchases. Anything over $2 million in purchases is a dollar-for-dollar decrease in section 179 tax depreciation expense.Īnother tax benefit that was extended through 2019 with the passage of the PATH Act was the Section 168k or “bonus depreciation” provision. Total property, plant and equipment purchases must be less than $2 million in order to receive the full depreciation benefit of $500,000. Although not all property, plant and equipment purchases are included, all construction equipment and machinery purchases are allowed. One tax provision - Section 179 - allows for an immediate tax depreciation deduction of the entire cost of equipment and machinery in the year it is placed into service. Both were made permanent and retroactive to Januby the new law. ![]() With the signing into law of the Protecting Americans from Tax Hikes (PATH) Act late last year, there are two opportunities to decrease taxable income by a significant amount through depreciation. Failing to depreciate new equipment correctly Here are four tax mistakes that contractors commonly make - some that can leave serious money on the table, or worse, land you in trouble with the tax authorities. Whether it’s purchasing a new piece of equipment to replace an outdated one, or hiring extra help to handle a brand new project, they tend to focus on “taking care of business” now and put off thinking about the tax consequences until later.īut doing so often comes at a cost. On a day-to-day basis, owners and managers of contracting firms do what they need to do to keep the business running.
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