The Best Builder Tax Deductions and Credits
- With the expert contribution of Adam Steinheiser, the Director of Accounting at Marketplace Homes
Construction businesses can write off a lot of business use expenses. When you work with a tax professional, you can get the most accurate, personalized advice for your unique expenditures. The following tax breaks are some of the biggest deductions and credits you can claim on your tax return. For the most comprehensive advice, speak with a tax professional.
Disclaimer: This blog is for informational purposes only but not a complete guide. Please consult a tax professional for the most accurate and up-to-date information regarding tax credits.
1. Transportation
Construction companies do a lot of driving. You visit different construction sites, pick up equipment, conduct business at the bank, pick up supplies, meet with partners, and much, much more. According to the IRS, businesses can claim a standard mileage rate of $0.65.5/mile. Log your miles according to IRS standards to ensure your numbers are accurate.
2. Business Travel Expenses
Travel is one of the joys of working out in the field. Not only can you deduct mileage on your return, but you can also write off other business travel costs. This can include:
- Up to 50% of meal costs
- Vehicle purchases
- Lodging
- Parking fees at the job site
This can be difficult to prove without ample documentation, so keep proof that the expenses are related to vehicles and machinery used exclusively for your business. Writing off these necessary expenses can improve the outcome of your income tax bill.
3. Losses from Theft or Damage
If your construction business experiences theft or damage, then you may claim these casualty losses as business expenses. There are limitations on what can be claimed, so speak to your financial advisor for specifics.
4. Self-Employment Tax
If your operations classify as a small business, you are self-employed, which makes you eligible for the self-employment tax deduction. When you pay toward Social Security and Medicare taxes, the IRS allows you to write off these taxes to give you extra savings. You will receive credit for half of the SE tax incurred from sole proprietorship or partnership entities based on your net income.
5. Advertising & Marketing
Marketing is essential for builders, and sometimes you need to pay to get the best results. If you pay toward advertising expenses, whether it’s via a digital or traditional channel, you can claim these construction industry expenses on your taxes.
6. Employees & Independent Contractors
It takes many skilled laborers to make a house. Whether you have permanent hires or get the help of contractors and subcontractors, you may deduct what you pay them on your year-end taxes.
Since the IRS has strict rules about who classifies as a full-time employee vs. a self-employed construction contractor, speak with your CPA to determine how to file paperwork for each hired hand. Generally, if you pay anyone over $600 per tax year that is not classified as an employee, you must report it on form 1099-NEC.
7. Insurance Premiums
Any insurance plan premiums related to your business or employee health insurance can be deductible expenses. As a self-employed individual, you could be entitled to self-employed health insurance deductions for the premiums paid for your policy, including your family members.
8. Depreciation Costs
Construction involves large, costly material and equipment purchases, like cement mixers, big trucks, and other sophisticated tools. When these purchases age, they begin to lose value or depreciate. Thankfully, the depreciation of these business assets is a common tax deduction you can take advantage of. Just check with your CPA to make sure that the asset in question qualifies. Recently, the Tax Cuts and Jobs Act changed depreciation rules. For more information, consult Section 179 from the IRS.
9. Professional Fees
You need more than skilled laborers to keep your construction business running smoothly. Hiring tax pros, marketing agencies, and legal assistance is part of the standard business owner’s expenses. Therefore, check with your CPA about what legal fees, accounting fees, and other business expenses related to building can be deducted as professional services fees. You may need to issue 1099-NEC to report these payments.
10. Home Office
You can deduct part of your home expenses if you manage your construction business in a home office that is not used for any other purpose. You need to know the square feet area of the office in relation to the house and you generally can take that % against home expenses (mortgage interest, property taxes, telephone (second line only), internet, utilities, and depreciation). There is also a simplified method of $5/sq ft that can be elected. If you use your home office frequently, this can become one of your best tax breaks!
- Note: Claiming a home office allows you to write off a percentage of utilities and mortgage interest, plus much more. It’s an excellent tax deduction that you must include on your Schedule C!
Get Every Dollar During Tax Time
Builders can reap a lot of tax write-offs when they keep records of all expenses. If you spend money for business purposes, save every receipt for tax time. Even an ordinary expense like gas spent to visit a job site can add up to considerable savings in April.
