It’s safe to say that everyone is still figuring out the aftermath of 2020 and its impact on businesses. With the new year ahead, business owners feel a cautious sense of optimism about the year’s potential for financial growth. Of course, with this growth also comes one of life’s guarantees: taxes.
Although we consider ourselves experts in concrete wall forms, we are certainly not accountants. We recommend working with financial advisors for your financial decisions, but we think it’s pertinent to discuss a few key points regarding the tax changes that you may notice in 2021.
Contractors’ are faced with a unique challenge. One of the many construction challenges to face in 2021: they must keep record of their income to help them owe minimal taxes while simultaneously keeping separate documentation that paints their revenue in the best possible light to stakeholders. And albeit tedious, this is completely legal, if not expected.
Keeping up with two sets of accounting books is no easy feat. According to this tax code, for their internal numbers, contractors should use a percentage-of-completion model for their calculations. But what they report to the IRS is a little more complex. Contractors can use several methods including cash, accrual, and accrual (excluding retainage).
It’s also important to understand what kind of long-term contracts you have in place and if any of them have changed year over year. If they do change, this impacts your taxes. When a change occurs, a form needs to be filled out and sent to the IRS before the year ends in order to ensure you save on or defer the tax burden.
A New President and Congress
In any given year, construction contractors make strategic decisions to get the most out of their tax return. They may delay depositing certain income until the next year or making major purchases by the last day of December.
However, because 2021 is bringing in a new president, his tax plan must also be considered. It’s being reported that Joe Biden will increase the corporate income tax rate up to 28% (from 21%). He also plans to raise taxes for those making more than $400,000 annually, which affects stakeholders that claim business earnings on their personal returns.
Now that the Georgia Senate race is over, it’s more likely that that these tax changes will come to fruition since Democrats have control over the Senate and House.
CARES Act and PPP – Tax Benefits
When COVID-19 hit in March 2020, Congress passed the CARES Act (Coronavirus Aid, Relief, and Economic Security) to help small businesses that were impacted by the nationwide shutdown. Thankfully, this resulted in some tax benefits for business owners, including:
• More opportunities to carry net operating losses back to previous tax years.
• The ability to deduct more business interest.
• Qualified improvement property eligible for 100% bonus depreciation retroactive to 2017.
• Employer portion of Social Security deferrable to 2021 and 2022.
• A refundable payroll tax credit equal to 50% of qualified wages.
Another result of the CARES Act was the implementation of the Payroll Protection Program (PPP). This program provides loans from the Small Business Administration to companies so they could continue paying rent, utilities, and of course, payroll.
If companies that received PPP did in fact spend their loan on the qualifying expenses, then the loans are considered forgivable. However, whatever portion of the loan was spent on other items must be paid back with a 1% interest rate.
It’s important to note that the IRS has stated whatever items were purchased with their PPP loan cannot be deducted on a company’s taxes, which may lead to a bigger tax bill.
If you’re looking for the best way to utilize your budget this year, Forming America provides high quality concrete form and concrete shoring equipment at a great price. Contact us to learn more about our products and services.