We can say goodbye and good riddance to 2020. It’s time to put that puppy to bed and plan for better business. And it’s time to pay taxes.
“The construction industry is unique in that contractors are expected to use different methods of accounting in order to pay the least amount of taxes possible and, at the same time… present a robust financial picture to lenders and other stakeholders,” says accountant James Lundy Jr., Marcum LLP.
Contractor Business Accounting Tips (and Taking Investors Into Account)
You need to grow your business, and you can’t do that if your potential clients, lenders, and investors see shaky finances. Lundy says all contractors must use the percentage-of-completion method of accounting for financial reporting.
Those are the books your investors and clients see.
But for tax returns, there are several types of accounting methods:
- Accrual/excluding retainage
Long-term contracts’ accounting (started in ’20 to-be-completed in ’21, for example) include:
- Completed contract
- Completion percentage
- Completion tax percentage
- Completion-capitalized cost percentage
Many contractors maximize taxes by stalling accounts receivables. Paying out year-end bonuses and getting all accounts payable current by December 31 also decreases taxes.
Construction Monitor: We Help Your Contractor Business Succeed
Tax legislation impacting your contractor business for 2021 is dependent on which party controls the Senate. And we still don’t know which direction that wind’s going to blow. But you can put business development plans in place regardless of politics.
Targeted marketing will be even more important in 2021 and beyond. Our world has gotten smaller, and along with that came a renewed focus on your local market. That’s just one way we help your contractor business.
- Contractor business development/resources
- Contractor business licensing
- Homebuilders associations
We believe knowledge is power and we have some powerful information for your contractor business. Contact us today to learn more.
You must pay taxes. But there’s no law that says
you gotta leave a tip. -Morgan Stanley