With all the talk about the many tax law changes for the 2013 tax year, hopefully you have already met with your tax advisor to do some tax planning for yourself and your construction company. While before you probably heard “accelerate income” or “defer deductions,” this tax year we are back to more traditional strategies, such as delaying income and accelerating deductions. Hopefully you got some good advice at the end of 2012, and you were prepared for the tax increases in 2013.
Yes – here they are in a nutshell:
Single taxpayers with taxable income over $400,000 (married over $450,000) will see a 4.6% marginal tax increase over last year (from 35% to 39.6%). The long-term capital gains tax rate for taxpayers with income over those thresholds jumps from 15% to 20%. And then there’s more – a surtax on net investment income has been added, which translates to taxpayers paying an additional 3.8% on the lesser of net investment income or modified adjusted gross income over $200,000 for individuals ($250,000 for married filers). The combination of these last two increases results in an 8.8% tax increase on long-term capital gains. Taxpayers with earned income over the same thresholds can expect to pay an additional 0.9% Medicare tax.
So what can you do?
- If you are a cash basis taxpayer, hopefully you paid as many bills as you could without damaging your cash flow.
- If you are an accrual basis taxpayer, make sure you record all of your bills and accrue for any expenses related to 2013, paid in 2014.
- If you file your taxes using the completed contract method, be mindful that jobs that are 95% complete are considered complete for tax purposes so review your contract schedules carefully to ensure proper reporting.
- If you use the percentage of completion method, you will want to review your contract schedule to confirm your estimates and cost allocations are correct and all approved change orders are included.
Additionally, be sure to tell your tax advisor if you bought new equipment in 2013. If qualifying property placed in service does not exceed $2 million, you can fully deduct up to $500,000 of qualifying purchases. Additionally, for qualifying purchases through December 31, 2013, the 50% bonus depreciation is available. Each of these tax advantages are currently set to expire or be drastically reduced in 2014.
Other considerations might be making a retirement plan contribution or giving bonuses to reward employees for exceptional performance.
The most important thing you can do is meet with your tax advisor as soon as possible to discuss strategies to minimize the tax burden for yourself and your construction company.
Terri Richards, CPA, is an entrepreneurial services manager in Kaufman Rossin’s Boca Raton, Florida, office, and a Certified QuickBooks ProAdvisor. Kaufman Rossin offers QuickBooks consulting services for a variety of industries, including construction. Terri can be reached at email@example.com.