4Thought Blog

Federal tax reform through the Tax Cuts and Jobs Act significantly expands bonus depreciation under Section 168(k) of the Internal Revenue Code for both regular tax and alternative minimum tax purposes. Now, the IRS has released proposed regulations that clarify the requirements that businesses must satisfy to claim bonus depreciation deductions.

Although the regs are only proposed at this point, the IRS will allow taxpayers to rely on them for property placed in service after September 27, 2017, for tax years ending on or after September 28, 2017.

The tax laws and accounting policies for construction and real estate development companies are unique and particular. If your accountant doesn’t have the industry experience, you’re likely missing out on some significant tax savings.

Everyone struggles to keep up when business really takes off. Projects come all at once. You may hire additional field workers to meet the demand. Payroll is stretched because payments which come in on your new projects lag months behind the large sums you lay out weekly to pay your workers.

This type of project financing concern is not yours alone. All construction contractors face this type of project financing snafu to some degree. The basic problem is your firm gets paid months after you need the money to run your projects.

There is something you can do to counteract the project financing snafu. The following are four great ways your firm can keep your bank balances high during busy season.

Did you incur costs during the building and construction or purchase of your facility? You can likely accelerate some deductions with a cost segregation study, an engineering-based analysis of the costs associated with the acquisition, construction, or renovation of a building.

The IRS continues to zero in on what it calls the "tax gap" — the amount between the taxes that are voluntarily paid and the amount the tax agency believes is actually due.

To this end, the IRS has issued a series of documents to provide better understanding of the tax code. One example is specifically directed at the construction industry.

The tax agency emphasizes instances where taxpayers failed to report, or under-reported, income from construction activities. This applies to individual workers as well as contractors and subcontractors. Following are the highlights:

No matter how your construction or construction-related company is set up tax wise, the new federal tax reform rules should offer your company some significant tax benefits.

If you’re a C Corporation, the biggest benefit is the reduction of tax rates ranging from 15% to 35% to a flat 21% rate. The Corporate Alternative Minimum Tax also has been repealed.

If you’re the owner of pass-through entity – an S Corporation, partnership or sole proprietorship – there’s also a major new business deduction for you. It’s not as easy to understand, but in some cases may be more beneficial.

And while the new federal tax law includes many benefits for businesses, there are some losses as well. Read on to learn about the most significant changes.

Do you own residential or commercial rental real estate? Federal tax reform through the Tax Cuts and Jobs Act (TCJA) brings several important changes that owners of rental properties should understand.

In general, rental property owners will enjoy lower ordinary income tax rates and other favorable changes to the tax brackets for 2018 through 2025. In addition, the new tax law retains the existing tax rates for long-term capital gains.

Every business wants to maximize profitability.

For general contractors and specialty trade contractors, a great financial tool to analyze job performance and find ways to boost the bottom line is a gain-fade analysis.

Most construction companies prepare work in progress (WIP) schedules, which help determine where a project currently stands on profitability. But for a more in-depth analysis of your profitability over time, a gain-fade analysis is a critical tool.

Are you thinking about divesting a real estate investment and then replacing it with another property? If you sell appreciated property outright, you'll incur a taxable gain, which lowers the amount available to spend on the replacement property. But you may be able to defer your tax bill (or even make it disappear) with a Section 1031 like-kind exchange.

It might be advantageous from a tax standpoint to run a business through multiple entities. For example, a construction company might form a separate company to own and lease its trucks and equipment back to its related entities. Or a corporation might transfer appreciated property to an affiliated corporation in order to limit risk in case it is sued.