Construction Tax Planning Secrets That Saved My Company $50,000

Construction tax planning saved our company over $50,000 last year. We focused on strategies that many contractors tend to miss. The Section 179 deduction alone lets businesses write off up to $1.16 million of equipment purchases. The reduction of bonus depreciation to 80% of an asset’s purchase price starting in 2023 really grabbed our attention.

Our team found several construction company tax deductions that substantially improved our bottom line at the time we started exploring tax strategies. The 20% qualified business income deduction (QBID) remains available for pass-through entities, but this benefit has an expiration date. Construction business owners miss opportunities worth thousands each year by not optimizing their tax approach. Programs like the Employee Retention Credit can amount to $33,000 per employee. Specialized credits for energy-efficient construction provide up to $5,000 per unit.

In this piece, I’ll share our company’s most impactful construction business tax write offs and strategies you can use before tax laws change again. Bonus depreciation continues to phase down over the next few years. The time to act is now.

Construction Tax Planning: Getting Organized for Tax Season

Construction companies need to start their tax prep well before the filing season begins. Their complex tax situations demand early organization to save money and stay compliant.

Reviewing owner compensation and payroll

Construction businesses often leave thousands in tax savings untouched due to compensation mistakes. The IRS closely inspects C corporation owners’ compensation. They look for “reasonable compensation” that matches industry standards and the owner’s actual role. Your business might lose deductions if the IRS sees your compensation as too high and labels part of it as dividends.

S corporation owners face the opposite challenge. They sometimes set their pay too low to dodge self-employment taxes. This move usually fails during audits. Your wage decisions affect your self-employment tax bills and could wipe out other tax perks if you get it wrong. You should keep records of your qualifications, job duties, company size, and similar industry pay rates to back up your salary.

Checking estimated tax payments and deadlines

Your construction business needs to make quarterly estimated tax payments if you expect to owe $1,000 or more at filing time. Missing a payment could mean penalties, even if you end up getting money back later.

Here are the payment dates for 2025:

• First quarter: April 15, 2025
• Second quarter: June 16, 2025
• Third quarter: September 15, 2025
• Fourth quarter: January 15, 2026

Construction income often changes throughout the year. The annualized income method might work better than equal payments. This lets you adjust your payments based on what you actually earn each quarter.

Tracking out-of-state work for compliance

Projects that cross state lines create tax headaches many companies miss. States have different rules about when you owe them taxes. Some want withholding after one day of work, others wait 30 days.

Take Pennsylvania – they need withholding for any nonresident working in the state from day one. Connecticut gives you 14 days before requiring it. Remote workers in other states might create “nexus,” which could mean extra state income taxes, sales taxes, and business permits.

You must track where your employees work and how many days they spend in each state. This helps you avoid surprise tax bills and expensive penalties.

Smart Deductions and Write-Offs We Used

Tax breaks we found this year completely transformed our construction company’s financial outlook. Our tax professional helped us find several powerful deductions that many contractors miss.

Expensing repairs and small tools under $2,500

The de minimis safe harbor election became our best tool to reduce taxes immediately. This IRS provision lets businesses deduct the full cost of tools and equipment under $2,500 per item without capitalizing them as assets. We used to depreciate everything, but now we immediately expense items like digital multimeters ($150), power drills ($120), and tool bags ($80).

This safe harbor applies to routine repairs and maintenance when each invoice stays below $2,500. We also used the safe harbor for small projects to get similar immediate deduction benefits on larger maintenance work under $10,000.

Using bonus depreciation before phaseouts

The time to act on bonus depreciation is now as it phases out. The Tax Cuts and Jobs Act started with a 100% first-year deduction for qualified property, but this benefit drops by 20% each year starting in 2023:

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%

We rushed to buy equipment to get these benefits before they decrease further. Heavy machinery and equipment with 20-year or shorter recovery periods gave us substantial upfront deductions.

Construction business tax write offs that are often missed

Our tax burden dropped significantly thanks to several overlooked deductions. The fuel tax credit was a surprise winner that pays back federal excise taxes on fuel used for off-highway construction equipment. We got back between $0.50 to $1.00 per gallon.

Cost segregation studies proved valuable by moving building components into shorter depreciation schedules. Rather than depreciate our building over 39 years, we identified non-building components that qualified for accelerated depreciation.

Research and development (R&D) tax credits came as a complete surprise. We weren’t working in a lab creating products, but our improved construction techniques qualified for this credit. These credits reduced our taxes dollar-for-dollar instead of just lowering taxable income.

Professional services expenses deserve attention too, including legal fees, accounting services, business insurance, and industry association memberships.

Tax Credits That Surprised Us

Our deep dive into specialized construction tax credits revealed many chances that contractors often overlook. These tax savings ended up giving us much of our total deductions.

Energy-efficient home credit (45L)

Tax advantages came our way through the 45L credit when we built energy-efficient properties. Our company received up to $5,000 per unit as qualified contractors who build new energy-efficient homes. Homes acquired between 2023 and 2032 qualify for this credit. The amount changes based on our compliance with Energy Star or Zero Energy Ready Home program requirements. The credit was smaller for homes built before 2023 – either $1,000 or $2,000 depending on achieved energy savings.

Work opportunity tax credit for new hires

Our company found great tax benefits by hiring from underrepresented groups. We received tax credits of 40% on first-year wages up to $6,000 when we hired veterans, ex-felons, and long-term unemployment recipients. This meant a maximum of $2,400 per eligible employee. Some veterans qualified us for credits up to $9,600. The process required us to submit Form 8850 to our state workforce agency within 28 days of each employee’s start date.

Employee retention credit (ERC) from prior years

The ERC turned out to be our biggest surprise. This refundable credit rewarded us for keeping employees during COVID-19. We qualified for up to $5,000 per employee in 2020 even with PPP loans. The first three quarters of 2021 brought up to $7,000 per employee per quarter. Each worker could earn us up to $26,000 in total credits.

Planning for Future Tax Law Changes

Tax law changes will shape our construction business’s future savings. Smart planning becomes more important as these laws keep changing.

Preparing for the end of the 20% QBI deduction

The Qualified Business Income (QBI) deduction has saved our construction company a lot of money. The One Big Beautiful Bill Act (OBBBA) has made this valuable tax break permanent instead of letting it expire after 2025. This change helps us avoid a federal income tax increase of approximately 7.4% in 2026.

Our pass-through entity status lets me keep deducting 20% of qualified business income. The law also bumps up income thresholds to $75,000 for single filers and $150,000 for joint filers. These amounts will adjust yearly with inflation.

Understanding how bonus depreciation phaseout affects us

The bonus depreciation reduction stays on schedule:

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%

The good news is that OBBBA brings back 100% bonus depreciation for property acquired and placed in service after January 19, 2025. This creates a lasting incentive for buying equipment. Remember though – you need to both buy and install after the January deadline to qualify.

How the SALT cap expiration could affect us

The State and Local Tax (SALT) deduction cap jumps from $10,000 to $40,000 in 2025. This cap will grow by 1% each year through 2029 before dropping back to $10,000 in 2030.

High earners will see fewer benefits. Taxpayers earning over $500,000 in modified adjusted gross income will lose 30% of their deduction above this threshold. This means at $600,000 of income, the cap goes back to the original $10,000 limit.

Conclusion

Tax planning strategies have altered the map of our construction business’s financial future. Smart organization, well-planned deductions, and specialized tax credits helped us save over $50,000 last year. On top of that, it positioned us to take advantage of tax law changes instead of getting caught off guard.

Quick action makes a huge difference with these strategies. Bonus depreciation phase-down means equipment purchase delays could cost thousands in potential deductions. The Employee Retention Credit program’s lookback periods need prompt attention too.

Tax planning in construction might look daunting initially, but the money saved makes it worth the effort. Our company’s proactive stance includes detailed interstate work records, documented owner’s compensation decisions, and strict quarterly tax payment tracking. This approach helps avoid penalties while maximizing legitimate deductions.

Our team found that there was a world of specialized tax advantages unique to construction businesses. Energy-efficient home credits, fuel tax credits for off-highway equipment, and R&D credits for innovative building techniques boosted our savings by a lot.

The tax scene will keep evolving. Notwithstanding that, opportunities for big tax savings still exist with the permanent QBI deduction and bonus depreciation returning to 100% after January 2025. Construction business owners who grasp these provisions can save thousands in tax dollars.

Think about what your construction business could do with an extra $50,000 before dismissing tax planning as too complex. The benefits of strategic tax planning go way beyond the reach and influence of immediate savings, whether you’re buying new equipment, expanding your team, or building a stronger financial foundation.