CONSTRUCTION Accounting ARTICLE - 3 Year End Tax Developments to ConsiderTarget Audience: Construction Industry Professionals, General Contractors, Construction Accountants It’s the season for year end tax planning! Unfortunately, tax law uncertainty has been making planning a challenge. Here are three developments that may require action before year end: 1. Section 179 expensingSec. 179 is a tax code provision that allows you to immediately write off the full price of qualifying assets you buy rather than depreciating them over several years, provided your purchases don’t exceed certain limits.The Hiring Incentives to Restore Employment (HIRE) Act, signed into law in March, extended to 2010 the increase in the Sec. 179 expensing limit to $250,000 that has applied in recent years. For 2011, however, the limit was scheduled to drop down to $25,000. Fortunately, the Small Business Jobs Act passed in September included an increase in the Sec. 179 expensing limit for 2010 and 2011 to $500,000. Another provision of the law benefits contractors involved in long-term contracts by extending 50% bonus depreciation to 2010. Check with your tax advisor for suggestions as to how you can apply these recently enhanced tax breaks to your construction company’s activities. 2. Hiring incentivesThe HIRE Act exempts most employers (including contractors) from having to pay the 6.2% Social Security portion of payroll taxes on wages paid to qualifying employees from March 19, 2010, through Dec. 31, 2010. To qualify, employees must have been hired after Feb. 3, 2010, and before Jan. 1, 2011, must have been unemployed (defined as not having worked more than 40 hours) for 60 continuous days before starting the new job, and cannot be related to the employer.If you retain workers qualifying for the payroll tax exemption for 52 consecutive weeks, you may be eligible for the HIRE Act’s retention credit on your 2011 income tax return. The tax savings per qualified retained worker are equal to the lesser of 6.2% of the wages paid to the worker during the 52-week retention period or $1,000. Additional rules apply to both incentives; work with your tax advisor to determine whether you can benefit. 3. A potential tax rate increaseIf your construction company is structured as a flow-through entity, such as a sole proprietorship, partnership, limited liability company or S corporation, take note: Individual income tax rates are scheduled to increase next year if Congress doesn’t act.Because you report business earnings on your individual return, you could face a substantial tax increase. Consider whether you should convert from your current flow-through entity status to a C corporation or take other steps to minimize taxes. Your tax advisor can help you determine the best course of action. Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770. related linksConstruction Newsletters & Articles |
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