Hard-working construction and project management professionals deserve all the tax deductions they can get. But, like many small-business owners, you may not always be aware of all the tax breaks available to businesses like yours.
Taxes are complicated, and the laws change frequently. So, it’s always a smart idea to consult with a tax professional, just because there may be many business tax deductions applicable for you. Also, make sure to keep good records of your expenses and the business purposes of each.
Here’s are seven tax deductions you want to make sure your business isn’t missing.
1. Home Office
While many folks know home office deductions can be taken, there are also many stories circulating about home office deductions triggering audits and may cause many people to skip the deduction altogether.
Here’s the deal. Business owners are entitled to take tax deductions for any area of their home used exclusively for business. So, for instance, if your business office is located in part of your garage, you can deduct expenses for utilities, equipment, furnishings and so forth as long as that area is used exclusively for business. Utilities are calculated as the percentage based on the total home’s square footage and the square footage the office comprises.
However, if the office contains a laptop and desk that your kids also use for school projects, you cannot use the home office deduction since the space is not used solely as a business office.
2. Car Transportation
If you use a car both for business and personal transportation, you can deduct both the mileage and expenses that are related to business. You need to keep careful records for tax purposes—write down the distance to and from all business-related areas, including building sites, client meetings and so on.
You should also keep track of expenses related to car transportation, such as insurance, oil and maintenance, and repairs. The cost of the proportion of these related specifically to your business can be deducted.
3. Start-Up Expenses
One of the best tax deductions for start-up businesses is the deduction for start-up expenses. Business owners can deduct as much as $5,000 in qualified start-up costs and as much as $5,000 in organizational costs. These must be specifically related to starting the business, so advertising, travel, training and paying your workers, consultant fees, and lawyer or accountant fees are all eligible.
If your total start-up expenses are more than $50,000, both deductions are reduced by the amount that costs rise above $50,000.
4. Purchase and Leasing of New Equipment
Federal tax laws let you deduct at least part of the purchasing price of qualifying equipment explicitly used for your business, including construction equipment, office equipment, and tools.
There are also deductions for depreciation and financing costs. If you are deciding on financing and leasing, consult your accountant which option makes more sense for you.
5. Bad Debt Losses
Unfortunately, people who work in the construction industry sometimes have clients from whom can’t collect debts. If your business has unpaid accounts receivable from someone who repeatedly can’t pay on time, it may be deductible. You may also be able to deduct any advance wages you may have paid to an employee who quit and the amount of loans to clients, distributors, suppliers, or employees that were never paid back.
According to the Internal Revenue Service (IRS), it must be in your line of work or closely related to it. The bad debt from your brother-in-law, for example, doesn’t count unless it was construction-related. You also need to have tried to collect the debt for a reasonable amount of time but have been unsuccessful.
6. Tax, Legal and Educational Expenses
Be sure to deduct all applicable tax, legal, and educational expenses. If you have paid monies to accounts, lawyers, and consultants related to the operation of your construction or project management business, they are deductible in the year they were paid in.
Although legal fees for the acquisition of business assets are not deductible, licensing and regulatory payments to local or state governments are deductible on your return. If you have paid for your employees’ training and education, that is deductible as well.
7. Mixed Use Expenses
Many people don’t deduct for things they use for both business and personal use. Cars are one example. But don’t overlook things like cell phones and other items that you may use for business. If you use your cell phone to talk to or text your sites, your employees, your clients, or your consultants, the extent of that use is deductible. Remember to make detailed records on what calls and texts are for business purposes, including their duration.
Be sure to obtain all the tax deductions you’re entitled to, as they can save you lots of money. Remember, it’s always good to double-check allowable deductions with your tax professional.