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Tax Planning for Contractors: Get Ahead for Next Year

In the construction industry, you know planning is everything. You would not start a project without blueprints, permits, and a schedule, and the same is true for your taxes. Too often, contractors wait until filing season to “see what happens,” only to find out they have missed major opportunities to save.

You can benefit greatly from reviewing tax planning year-round, not just at the end of the year. By looking ahead now, you can implement strategies to reduce your tax liability, improve cash flow, and set your business up for a stronger year ahead.

Why Tax Planning Matters in Construction

Construction companies face unique challenges that many other industries do not, like irregular cash flow, retainage, equipment-heavy operations, and multi-state jobs. These moving parts create both risks and opportunities, reinforcing the importance of planning and preparation. The sooner you plan, the more control you have over the outcome.

Contractor reviewing financial charts with a calculator, hard hat, ruler, and pencil on the desk, symbolizing tax and business planning.

Key Tax Planning Strategies for Contractors

Review Your Business Structure

Is your company an LLC, S-Corp, or partnership? The right structure can save you thousands in taxes, especially as your revenue grows.

  • Example: An LLC filing as an S-Corp may allow you to reduce self-employment taxes by splitting income between wages and distributions.

Maximize Depreciation on Equipment and Vehicles

Construction companies rely on heavy equipment, trucks, and tools, all of which may qualify for accelerated depreciation.

  • Example: Buying a new skid steer in December versus January could change how much depreciation you can claim this year. Section 179 and bonus depreciation can let you write off a large portion of the cost up front. Check out our blog here.

Manage Retainage and Income Timing

Retainage often ties up a significant amount of cash. Strategic timing of when you recognize revenue and expenses can smooth taxable income.

  • Example: If you are wrapping up a project in December but do not expect final payment until January, an accounting or tax professional can help you plan whether to defer income or accelerate deductions to your advantage.

Take Advantage of Industry-Specific Credits

Some contractors qualify for credits related to energy-efficient building practices

  • Example: A contractor building energy-efficient homes could qualify for the Energy Efficient Home Credit (45L).
Hands pointing at sales and expense charts with a calculator and construction hard hat nearby, representing contractor tax planning.

Stay on Top of Estimated Tax Payments

Large projects with delayed payments can make it difficult to stay current on quarterly tax estimates. Underpaying can lead to penalties.

  • Tip: Regular WIP (work in progress) reporting helps project taxable income more accurately, so you can stay ahead of estimates.

Watch Multi-State and Local Tax Rules

If your crews work across state lines, you may owe taxes in multiple jurisdictions. Nexus rules are complex but critical.

  • Example: A contractor based in Arizona working on a project in Nevada may trigger state tax filings in both states, even if the business is headquartered elsewhere.

Steps You Can Take Now

  1. Schedule a tax planning review before year-end to project next year’s tax liability
  2. Review WIP reports and job costing to ensure numbers are current and accurate
  3. Make a list of planned purchases (equipment, vehicles, tech upgrades) and evaluate timing for tax benefits
  4. Stay proactive with retainage and Accounts Receivable both have big tax and cash flow implications

Tax planning is similar to project management, the best results are achieved by planning early, tracking progress, and adjusting problems before they arise. For contractors, proper tax planning means more cash on hand, fewer surprises at tax time, and the ability to reinvest in your business.

We want your business to not only succeed, but to thrive and profit! If you have any questions, please reach out to us and we would be happy to assist you.

*The information provided in this blog post is for general informational purposes only and does not constitute accounting, tax, financial, or legal advice. It is not intended as a substitute for professional consultation tailored to your specific circumstances.*

~ the addtech crew

ready to run your business with the same confidence you have on the job site?

at adding technology, we know you want to focus on what you do best as a contractor. in order to do that, you need a proactive back office crew who has financial expertise in your industry.

the problem is that managing and understanding key financial compliance details for your business is a distraction when you want to spend your time focused on building your business (and our collective future).
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Ready to run your business with the same
confidence you have on the job site?

At adding technology, we know you want to focus on what you do best as a contractor. In order to do that, you need a proactive back office crew who has financial expertise in your industry.

The problem is that managing and understanding key financial compliance details for your business is a distraction when you want to spend your time focused on building your business (and our collective future).

We understand that there is an art to what contractors do, and financial worries can disrupt the creative process and quality of work. We know that many contractors struggle with messy books, lack of realtime financial visibility, and the stress of compliance issues. These challenges can lead to frustration, overwhelm, and fear that distracts from their core business.

That's where we come in. We're not just accountants; we're part of your crew. We renovate your books, implement cutting-edge technology, and provide you with the real-time job costing and financial insights you need to make informed decisions. Our services are designed to give you peace of mind, allowing you to focus on what you do best - creating and building.

Here’s how we do it:

  1. Schedule a conversation. Let’s break ground on your financial renovation.
  2. We work through an assessment together that leads to a plan based on your specific needs. Then, we execute, and you have the opportunity to evaluate us on progress from day 1.
  3. Enjoy the freedom to build our future!

Schedule a conversation today, and in the meantime, download the Contractor’s Blueprint for Financial Success: A Step by-Step Guide to Maximizing Profits in Construction.” So you can stop worrying about accounting, technology, and compliance details and be free to hammer out success in the field.

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