In the construction industry, it's not just about building solid physical foundations—your financial foundation needs to be equally strong. At Vickney & Associates CPA, we've helped numerous construction companies throughout Wisconsin maximize their tax advantages while staying compliant. Here are our top tax hacks that can help your construction business keep more of what you earn.

Master the Accounting Method Decision

One of the most important tax decisions for construction companies is choosing the right accounting method:

• Cash Method: Generally simpler, allows more control over taxable income timing
• Accrual Method: Required for larger contractors, matches revenues with expenses
• Percentage of Completion: Often required for long-term contracts, recognizes profit as work progresses
• Completed Contract Method: Defers profit recognition until project completion (available for some smaller contractors)

Each method has significant tax implications, and the optimal choice depends on your specific business situation. Companies with revenue under $26 million have more flexibility in their accounting method selection.

Strategically Time Income and Expenses

Construction companies have unique opportunities to manage when income and expenses are recognized:

• Schedule progress billing strategically at year-end
• Accelerate material purchases before year-end when advantageous
• Consider prepaying certain expenses in high-income years
• Delay sending invoices until January for December work (cash method)
• Purchase needed equipment to utilize Section 179 deductions

These timing strategies can significantly reduce your annual tax burden when properly executed.

Maximize Vehicle and Equipment Deductions

Construction businesses rely heavily on vehicles and equipment, creating substantial tax-saving opportunities:

• Take advantage of Section 179 expensing for equipment purchases (up to $1,080,000 in 2022)
• Consider bonus depreciation for qualified property
• For heavy vehicles over 6,000 lbs GVW, utilize accelerated depreciation options
• Maintain detailed mileage logs for all business vehicles
• Document business use percentage for mixed-use equipment
• Consider the timing of equipment purchases based on your tax situation

With proper documentation and planning, these deductions can dramatically reduce your tax liability.

Optimize Labor Costs and Credits

Your workforce represents both a significant expense and potential tax advantage:

• Consider employee vs. subcontractor classification carefully (following proper IRS guidelines)
• Explore available Work Opportunity Tax Credits for hiring from certain groups
• Implement accountable reimbursement plans for employee expenses
• Consider family employment strategies when appropriate
• Structure compensation packages to maximize tax efficiency

Proper workforce management from a tax perspective can yield substantial savings.

Document Job Costs Meticulously

Detailed job costing isn't just good for business—it's essential for tax compliance and optimization:

• Implement systems to track direct costs by project
• Document overhead allocation methodologies
• Maintain records that clearly connect expenses to specific jobs
• Create audit-ready documentation systems
• Use this data to identify tax-advantaged specialization opportunities

This level of detail makes defending deductions much easier during potential IRS scrutiny.

Utilize the 20% Qualified Business Income Deduction

The Tax Cuts and Jobs Act created a valuable deduction for pass-through construction businesses:

• S corporations, partnerships, and sole proprietorships may qualify for a deduction of up to 20% of qualified business income
• For higher-income contractors, deduction may be limited based on W-2 wages paid
• Consider wage level optimization to maximize this deduction
• Evaluate whether your business structure optimizes this deduction
• Review related businesses to ensure proper aggregation elections

This relatively new deduction can significantly reduce tax liability for qualifying contractors.

Consider Cost Segregation Studies

For construction companies that own their facilities or have significant client projects:

• Cost segregation studies identify building components that qualify for shorter depreciation periods
• Components like specialty electrical, plumbing, and mechanical systems often qualify for 5, 7, or 15-year depreciation instead of 39 years
• This accelerated depreciation creates larger current deductions
• The benefits often far outweigh the cost of the study
• Can be applied to both new construction and existing buildings

This strategy can significantly improve cash flow through accelerated deductions.

Implement Strategic Entity Structuring

The right business structure can significantly impact your tax situation:

• Consider whether an S corporation, C corporation, LLC, or other entity best suits your needs
• Evaluate multiple entity strategies that separate high-liability operations from assets
• Implement appropriate agreements between related entities
• Create documented business purposes for structural decisions
• Review structure regularly as tax laws and your business evolve

With construction's inherent risks, proper entity structuring serves both tax and asset protection purposes.

Plan for Business Succession and Estate Taxes

Construction company owners should integrate business tax planning with personal wealth strategies:

• Implement buy-sell agreements funded with life insurance
• Consider gradual ownership transfers to minimize gift and estate taxes
• Evaluate family limited partnerships or other ownership transfer vehicles
• Integrate retirement planning with business succession
• Coordinate with your personal estate plan

Proper succession planning ensures your construction business legacy continues while minimizing taxes.

Don't Overlook Specific Industry Deductions

Construction companies qualify for numerous industry-specific deductions:

• Mobile phone expenses for field supervisors and project managers
• Work clothing and protective equipment
• Small tools and supplies
• Continuing education and licensing costs
• Association memberships and industry publications
• Bid bond costs and performance bond premiums
• Business insurance and warranty reserves

Ensuring you capture all these deductions adds up to significant savings.

Ready to Build a Stronger Tax Strategy?

At Vickney & Associates CPA, we understand the unique tax challenges construction companies face. Our team can help you implement these tax hacks and develop a customized tax strategy that builds your company's financial strength.

Contact us today to schedule a tax planning consultation and learn how our proactive approach can help your construction business keep more of what you earn.