A large majority of construction workers are classified as independent contractors, meaning they don’t have taxes withheld from their paychecks like traditional employees. Essentially, they face a more severe tax preparation burden and may need to see a tax professional, although they are able to claim business-related expenses as tax deductions.
But, don’t worry. However intimidating taxes may appear, BlueTape is here to give you more information, tips, and tricks in navigating tax season.
Understanding Tax Deductions
Tax deductions help small businesses avoid paying high costs in taxes by decreasing their tax liability. At tax time, qualifying expenses that your business gains during the year can be written off to reduce your tax burden. These rules are particularly helpful when your business is claiming a loss and can not muscle high tax fees.
Common Tax Deductions and Their Benefits
Tax deductions in the construction industry range across a large array of expenses and fees that businesses have to pay yearly. These range anywhere from simple transportation costs to and from worksites to larger businesses expenses. Here are some useful examples:
- Transportation expenses
- While you can not deduct the cost you gain from going to and from your home and work, the IRS allows you to deduct the cost you amount from trips between multiple job sites and any other business-related commutes.
- You must choose between two methods of tax deduction: the actual expenses method or the standard mileage method. The actual expenses method requires you to manually calculate the total cost of all transportation expenses, whereas the standard mileage method allows you to cut 58 cents per mile off of your taxes.
- This deduction also allows you to write off the parking, tolls, and public transportation costs that you face at job sites and business-related trips.
- The IRS allows construction companies to deduct the cost of advertising materials, like promotional items and flyers, as well as the expenses the business makes when hiring someone to design advertisements.
- Business Insurance
- Any business related insurance, such as general liability insurance or property insurance, are entirely deductible.
- Contact Labor
- Any payments made to subcontractors who worked with you on a job are subject to tax deductions.
- Legal and Professional Services
- Any fees that you face from attorneys, tax preparers, or accountants can be deducted. Professionals employed by your business, however, can not be deducted and must be included under “Wages” on your tax form.
- Any meals that are not deemed lavish can be deducted from your taxes. You can receive up to a 50 percent deduction for all of the food and beverage costs that your construction company has.
- Taxes and Licenses
- Any licenses that your business requires and the business taxes that your business incurs can be deducted from your tax form.
- Salaries, commissions, and bonuses can be deducted from your taxes. This does not include, however, any employee benefits that your construction company gives to employees, which are separately deducted on another line.
Calculating and deducting taxes is a hassle for many workers in the construction industry. Hopefully, you can use this information to understand where your business has room to write off any expenses to ensure that your tax burden is not too hefty. If you need more information regarding the tax process or any deductions, talk to your CPA for more information.
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