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Contractors need to invest in tax planning throughout the year to gain the maximum impact. While most year-end tax strategies strive to accelerate income in the current tax year and defer expenses to the next year, strategic tax planning takes into consideration many other factors, including how reducing income for tax purposes will affect a contractor’s financial statements, cash position, working capital and financial ratios.

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AccountingMore Like This

More than almost any other industry, construction contractors need to spend time and resources planning for their income taxes before the end of their fiscal year. Contractors must be sure to retain their financial statement strength and ratios while considering possible tax methods of accounting, projected taxable income for remaining months, tax vs. book depreciation and the calculation of alternative minimum taxes and available tax credits for the entity and the pass-through owners. It is important that all these variables be considered to ensure the most favorable financial and tax objectives are achieved.

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AccountingMore Like This

Business owners must collect, report and submit payroll taxes as required by federal and state laws. It is important that payroll systems and processes are accurate and efficient to meet federal and state obligations. Otherwise, a corporate officer or other responsible party (as defined by the IRS) may be personally liable for payroll taxes that are not reported or deposited, even if someone else processes payroll.

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There was a time when non-recourse financing for commercial real estate projects protected borrowers against personal liability for a loan gone bad. Lenders would look solely to the underlying assets of the project to recover losses when a loan defaulted. However, as times have changed, so too have these protections.

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Cash is essential to running day-to-day operations and improving a company’s financial position when presented to banks and other creditors, so contractors continue to search for ways to keep cash available. One of the best opportunities to keep more cash in the company is to create a tax deferral. Tax deferral strategies for contractors are often overlooked or misunderstood.

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