While not always the most enjoyable discussion topic, income and payroll taxes are a necessary and significant component of business operations. Working with an experienced team of tax advisors will ensure that your company is not only compliant with the various rules and regulations surrounding taxes, but also offers the opportunity to discuss the applicability of tax credits that could generate significant tax savings, and in some cases, potentially generate a refund of previous taxes paid. Below are some tax credit opportunities that are relevant to the construction industry.
Research and Development (R&D) Tax Credits
As we discussed in a previous blog, many construction contractors are unaware that their activities potentially qualify for R&D tax credits. Qualifying R&D tax credits are a dollar-for-dollar reduction of a company’s federal, and potentially state, tax liabilities. Contractors that design, engineer, or construct something that hasn’t been attempted previously often have qualifying activities. If your company has engineers on staff, this credit is worth looking into. If you design your projects from the ground up or have innovative construction methods, this credit is worth looking into.
Employee Retention Credit
We’ve published many articles on the availability of this credit, and for good reason. If your company qualifies, there is an opportunity for a significant tax refund of payroll taxes previously paid (up to $5,000 per employee for 2020 and up to $21,000 per employee for 2021). The construction industry is very labor intensive, and many contractors have had volatile revenue streams over the past two years. If you haven’t looked into the applicability of this credit, you should. If you have looked into the applicability of this credit but determined your company did not qualify, we recommend you take a second look. The rules are unique, and there multiple ways to qualify. In addition, an organization may qualify for only certain quarters, but not qualify for other quarters. Our team is able to help navigate the particulars of this credit. If you would like to get an analysis started to review the potential savings for your company, please fill out the form on our Employee Retention Credit page.
Fuel Tax Credits
Included in the price of every gallon of fuel purchased in the United States are varying federal and state taxes. These federal taxes are imposed to fund the upkeep of roadways, bridges, etc. However, businesses that purchase undyed fuel for off-highway business use are able to claim a dollar-for-dollar tax credit against the business’ federal income tax liability. Fuel tax credits are calculated based on an IRS determined amount per gallon of undyed fuel purchased for off-highway use. Common uses of off-highway fuel include excavators, bulldozers, graders, pavers, cranes, and generators. Businesses simply need to track purchases of on-highway fuel separately from off-highway fuel to accurately calculate this credit.
Every business’ tax situation is different. McKonly and Asbury has a team of experts that are able to help your business navigate these tax credit opportunities. Visit our website for more information on McKonly & Asbury’s Construction Services and Tax Services.