558: Practical Tax Season Tips For Construction Business Owners

This Podcast Is Episode 558, And It's About Practical Tax Season Tips For Construction Business Owners Tax season can be a bit overwhelming for construction business owners, especially with many things to keep track of in our industry. But don't worry; we're here to help! We know that construction businesses have unique tax considerations that can be tricky to navigate, such as complex accounting and bookkeeping challenges and issues related to payroll and sales taxes.    That's why staying informed about the latest tax laws and regulations is essential, as well as working closely with a qualified construction accountant and tax professional who can guide you through this process and ensure you comply with all applicable tax rules and regulations.    Preparing for tax season is a year-round endeavor. Tip number one for construction company owners is to update monthly financials using a streamlined software or cloud-based system.   This way, come tax time, everything you need is in one place. Well-organized small businesses are better positioned to minimize tax bills while avoiding missing or inaccurate information penalties.  

Here are four more ways to take the stress out of tax time and maximize your return.

Know your credits and deductions.

Small businesses typically benefit from a wide range of tax credits. From special allowances for research and development to programs that supplement wages for student employees and apprentices, knowing which credits apply to your business can save you a tax bundle.

It's also essential for business owners to be savvy about deductions. After all, you want to keep as much of your hard-earned revenue as possible. Often-overlooked items you may be able to deduct include:

- Seminars, classes, or conventions you attended to improve your professional skills;

- Unused inventory that you've donated to charity (an excellent reason to consider donating your overstock rather than paying for storage) and

- Capital assets, such as office furniture, computers, and equipment.

Speak to your accountant about the deductions you can plan for each tax year.
Be careful about what you claim.

If you run your business out of your home, you may be able to claim a portion of expenditures like utilities, insurance, property tax, and rent. But you must keep good records and receipts to justify why you've allocated business costs to your home office.

The same goes for home office computers and mobile phone expenses. Tax authorities will want to see how you've separated these assets from personal and professional use when you claim them as work expenses.

Want to claim drive time as a work expense? Ensure you submit a log of your business-related mileage to demonstrate how your personal vehicle was used professionally.

Don't miss the deadline!

This should go without saying, but construction business owners are hit with severe penalties for filing taxes late yearly. Missing the deadline can have a range of negative repercussions, including:

- Added interest to amounts owing, plus a late payment penalty;

- Losing your claim to a refund;

- Loss of credits toward retirement or disability benefits and

- Delay of loan approvals (lenders require a copy of your filed tax return to process your application).

Seek expert advice well in advance.

A survey of small business owners found that a full quarter don't understand their tax obligations. What's more, 27% only speak to their accountant at the last minute, just before the filing deadline.

Having trouble? You don't have to go through it on your own again. Set yourself up for success this year by following these four pillars of painless tax preparation:

1. Commit to clean bookkeeping from day one

Year-round, effective bookkeeping is the best way new business owners can minimize tax season stress. With the wide range of accounting software, there's no reason to rely on time-consuming manual methods that leave room for error.

All-in-one options like Xero and QuickBooks automate your most important bookkeeping processes, including:

Tracking expenses; Tracking sales and income; Creating and sending invoices and Managing inventory.

With your financial records in one place and up-to-date, you're better positioned to maximize your refund while avoiding penalties associated with incorrect or incomplete tax returns.

2. Capture every business expense

Each year, 21% of small business owners claim less than half of their business expenses, primarily because they don't have a reliable system for documenting expenditures while on the go.

Without carefully logged receipts, entrepreneurs must forfeit valuable tax deductions, sacrificing cash they could funnel back into their business.

Cash in on claimable expenses using a mobile app to record receipt data, track mileage, and generate expense reports. As a bonus, many of these tools sync with your all-in-one accounting software.

3. Separate business from personal

Right from day one, small business owners should divide their personal and business expenses. Differentiating between the two will make it much easier to claim deductions on your tax return – and support those claims in case of an audit.

Recommended steps to separate your business and personal finances include:

Create a separate bank account for your business, and designate a credit card solely for business purposes (this will help you track expenditures while building up your credit and borrowing power); Never combine business and personal expenses (for example, if you buy printer ink for your home and your business at the same time, ask for two separate receipts); Pay yourself a set salary from your business checking account each month (this will help you determine how your income and the company will be taxed).   4. Always consult with an accountant

Not sure exactly what you can claim as a business expense? Are you wondering which accounting software to use or how to interpret local tax regulations?

Consult with a construction accounting professional to put your mind at ease – well before the filing deadline! In addition to managing the nuts and bolts of tax preparation, regular meetings with an accountant will help you continuously improve construction bookkeeping practices and better understand the financial workings of your small business.

Final thoughts 

Those organizational strategies you commit to now will promote positive relations with your local tax authorities – and the long-term financial health of your construction company.

Technology has made it easier than ever for small business owners to file for themselves, but when it comes to thoroughness and accuracy, nothing can replace the expert advice of an accountant.

Consult a business professional specializing in construction bookkeeping and accounting well in advance to ensure you get the most out of your tax return and that your documentation is complete. Conversely, accounting fees are often tax deductible, and I do not charge phone chats/consultations. Don't stress too much! Let me know how I can help you.

PS  We offer free resources to help you save time and money that you can download and print now. 

About The Author:

Sharie DeHart, QPA, co-founded Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com