Construction and Commercial Real Estate Development
Accounting for long-term construction contracts is complicated. Construction contractors can use different accounting methods for “book” and “tax” purposes. They can also use different methods of accounting for long-term contracts (percentage of completion). All of this means that there could be four “small” (under $10,000,000) contractors doing similar work each using a different method of accounting; cash basis, percentage of completion, completed contract, and accrual accounting. We can assist you with choosing which method would be best for your company and help set-up or maintain your bookkeeping system accordingly.
A contractor may have the option of using one of the accounting methods described above for “regular” tax purposes but have to use the percentage of completion method for Alternative Minimum Tax (AMT) purposes, which adds complexity. We see this missed on contractor tax returns.
The domestic production activities deduction (DPAD) can allow contractors to deduct up to 9% of their net profit on real estate contracts from their taxable income. We see this deduction missed on contractor tax returns.
Large contractors are subject to look-back calculations that require a recalculation of income recognized in prior years that can result in a subsequent tax payment or tax refund depending on the outcome of the look back calculation.
We help our contractor clients recognize these and other tax planning opportunities (goldmines): bonus depreciation, Section 179 depreciation, fuel tax credits, research and experimentation credits, energy efficient tax credits (now expired) etc. We can also help you avoid landmines: state tax nexus issues, sales tax issues, worker’s compensation etc.