Construction businesses spend $10 billion on goods and services every year, according to Go Contractor. As a result, each and every construction company in the U.S. is spending hundreds if not thousands of dollars on tax every time they submit their taxes to the Internal Revenue Service (IRS). But if you own a thriving construction business, you’ll be pleased to know that there are plenty of tax deductions that your organization can take advantage of.
Ordinary and necessary expenses
All construction companies rely heavily on tools and machinery to keep their businesses afloat. However, some construction businesses cut back on the amount of equipment that they purchase in order to keep costs down. But this frustrates 26% of construction workers, according to Plangrid, which is the last thing any business should do.
You will, therefore, be pleased to know that tools and machinery are classed as necessary expenses and are tax-deductible. Large, costly items with long lifespans, such as cement mixers, are typically claimed back over several years, whereas smaller items, like drills, can be claimed back in their entirety in the tax year they were purchased.
Tools and machinery aren’t the only business expenses that you can claim tax relief on. The IRS allows construction businesses to claim all ordinary and necessary expenses back. An ordinary expense is described by the IRS as being "common and accepted” to a construction company, while necessary expenses are things that are considered helpful to a business, such as safety equipment, utilities, and maintenance costs.
Examples of ordinary expenses for construction businesses may include are employees’ wages, Construction insurance, and rental costs. Your business might choose to rent out specialist equipment designed to boost workplace access. Aerial equipment, for example, are handy tools that improve reachability and safety on construction sites. As this equipment isn’t needed on a daily basis, they’re usually rented out for set periods, and it’s this cost that you can claim back when filing your taxes.
Depreciation of business assets
Your construction business is sure to own a significant number of valuable items that are considered assets. These assets will include the tools and machinery that have been bought outright, raw materials, and vehicles.
All of these items are likely to depreciate in value with increased use, but the good news is that you can claim tax relief from the IRS on them too. The only problem is that depreciation can be a tricky thing to calculate as there are multiple accepted methods to get your final figures, including:
- Straight-line depreciation method
- Diminishing balance method
- Unit of product method
- Double declining balance method
For this reason, it’s often advantageous to get assistance from a professional accountant. Although this can be costly, an expert in the field will ensure that you accurately claim all the relevant depreciation-related tax deductions that you can. Plus, you won’t have to worry about being fined for submitting incorrect information.
Advertising & hiring fees
There is currently a shortage of 300,000 construction workers in America. Despite this, jobs are coming in thick and fast for construction businesses and many organizations will permanently advertise job positions within their company in the hope that interested candidates will get in touch with them.
There’s no need to worry about the expense of job advertisements mounting up though as they are tax-deductible. This means you can claim for any paid job advertisements that you put out, as well as the cost of advertising with job agencies and similar businesses.
Similarly, any business advertisement and marketing that you pay out to entice customers to choose your business can be claimed back too. These costs may include, leaflets, newspaper ads, TV and radio ads, website expenses, and social media ads.
Although most entry-level construction workers can get into the job with a high-school diploma or GED, to progress they’ll need to embark on training and secure qualifications. It’s beneficial for construction businesses to arrange and pay for the cost of this training as it will encourage the worker to stick with that specific business.
The IRS has strict criteria in place for businesses looking to claim tax relief on these expenses, but they do state that as long as the training does not allow the employee to transition into a new career, businesses can claim this deduction. With this in mind, health and safety training, for example, which is crucial for a safe working environment, can be deducted when you’re filling in your taxes.
It’s common for construction companies to rack up miles while traveling between sites and when transporting goods from one site to another. As of January 1, 2020, the IRS permits businesses to claim 57.5 cents per mile for every mile driven for business use.
17 cents per mile can also be claimed when it is for medical or moving purposes. It is, therefore, crucial that every single journey that construction workers make is recorded accurately.
It’s also important to remember that while you can claim tax relief for mileage between sites, you cannot claim for the miles you or your workers drive when traveling from home to your place of work and back again, even if you are using a business vehicle at the time.
Construction businesses up and down the country have a high number of expenses that they encounter on an annual basis. So it’s reassuring to know that there are many different tax deductions that you can take advantage of when you run such a business.
Author Bio: Amy Fletcher is a freelance writer and researcher with a keen interest in business management. In recent years she has written for various online magazines, journals, and blogs. When she's not writing she enjoys long walks with her daughter and two dogs.