Note: SPM is not a CPA firm and does not prepare or file tax returns. This page covers general tax planning concepts relevant to construction contractors — consult your CPA for advice specific to your situation, entity structure, and tax year. SPM produces the clean, job-costed books that make these strategies actionable and defensible.
Deduct the full purchase price of qualifying equipment in the year of purchase rather than depreciating it over time. Excavators, graders, compactors, service vehicles — any business property placed in service during the tax year may qualify. Your CPA determines the applicable limit and phase-out thresholds for your situation.
Bonus depreciation allows immediate expensing of a percentage of qualifying asset costs beyond Section 179 limits. The percentage and qualifying asset types have been changing — confirm current rates and eligibility with your CPA for the 2025 tax year being filed in 2026.
Pass-through entities (S-corps, partnerships, sole proprietors) may qualify for a deduction of up to 20% of qualified business income. Construction is generally a qualified trade — but W-2 wage and property limitations apply. Proper owner compensation structuring affects QBI optimization significantly.
SEP-IRA contributions can be made up to 25% of compensation (or $69,000 for 2024 — confirm 2025 limits with your CPA). Solo 401k plans allow higher total contributions. For owner-operators, retirement contributions are one of the highest-leverage tax reduction strategies available and are fully controlled by the owner's decision.
A profitable sole proprietor or single-member LLC pays self-employment tax on all net income. An S-corp election allows the owner to pay reasonable salary (subject to payroll taxes) and take remaining profit as a distribution (not subject to SE tax). The break-even point is typically $40,000–$60,000 of net profit. Your CPA or attorney handles the election.
The revenue recognition method determines when taxable income is reported. Larger contractors are generally required to use percentage-of-completion. Smaller contractors may have options. The choice has material impact on timing of tax liability and income smoothing across years — consult your CPA before assuming your current method is optimal.
Equipment purchases need to be in the books with correct asset categorization. Vehicle expenses need business-use documentation. Owner compensation needs to be documented as salary vs. distribution for S-corps. Equipment allocated to jobs needs to be correctly classified as direct cost — not lumped into SG&A. All of this requires maintained books, not year-end reconstruction.
Under percentage-of-completion, the percent complete on active jobs at year-end affects how much revenue is recognized — and how much taxable income is reported. If job costs are misallocated or phases are miscoded, the percent complete calculation is wrong, and taxable income is wrong. Clean job costing isn't just a management tool — it's a tax accuracy requirement.
A CPA who receives clean, reconciled, job-costed books takes significantly less time to prepare a return than one who receives a bank feed and a box of receipts. For most contractors in the $1M–$12M range, the time savings translates directly to lower tax prep fees — often $2,000–$8,000 per year. SPM produces the books your CPA needs to work efficiently.
This page provides general information about tax planning concepts relevant to construction contractors. It does not constitute tax advice. Tax laws change, individual situations vary, and strategies that apply to one contractor may not apply to another. Consult a qualified CPA or tax advisor for advice specific to your business, entity structure, and tax year.
The most impactful strategies: Section 179 equipment expensing, bonus depreciation if applicable, Section 199A qualified business income deduction for pass-through entities, retirement plan contributions (SEP-IRA or Solo 401k), and entity structure review for SE tax optimization. All require clean, job-costed books to document and substantiate — consult your CPA for advice specific to your situation.
Two ways: it determines taxable income more accurately under percentage-of-completion accounting, and it provides documentation for deducting equipment, direct labor, and overhead correctly. Clean job-costed books reduce tax prep time, lower prep fees, and make deductions defensible. Messy books cost money both in prep time and in missed deductions.
Completed-contract recognizes revenue and expenses only when a job is complete. Percentage-of-completion recognizes them as work progresses based on percent complete. The method affects when taxes are owed and how income is smoothed across years. Most larger construction contracts require percentage-of-completion. Consult your CPA for guidance specific to your contract size and situation. Schedule a call to see how SPM maintains the books that support accurate percentage-of-completion accounting.
SPM produces the job-costed financials your CPA needs to work fast and find every deduction.
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