2024 Tax Credit Opportunities for Construction Contractors
Source: McKonly & Asbury
Who loves tax credits? Raise your hand! Tax credits are a dollar-for-dollar reduction of taxes that could put money back in companies’ pockets – either today or looking towards the future for next year’s taxes. It’s never too early to start planning!
Research & Development Tax Credits
The R&D tax credit is available to companies that have designed products or improved processes. R&D tax credits are often overlooked by construction contractors; many people don’t think of construction as “research and development.” They’re picturing a scientist sitting in a lab or a tech company developing new software, so they think it doesn’t apply to them. However, many contractors, specifically design-build contractors, see a lot of savings here. It does not necessarily have to be a brand-new design or process, just new to the business or industry. Depending on the specifics of the business, this credit could bring huge savings!
Do keep in mind, as of right now, costs related to research and development must be capitalized and amortized over five years, instead of expensed in the current year. This was a change that went into effect for tax year 2022. While there’s still hope it will be repealed, as of right now it has not. There is a bill currently in Congress that would reverse this, but it hasn’t yet passed. However, regardless of whether R&D tax credits are claimed, these R&D costs must still be capitalized and amortized.
Section 179D
Another credit that could bring large savings to business owners planning large renovations is Section 179D. Owners of commercial buildings are eligible, as well as designers of commercial buildings owned by governmental entities, tax-exempt organizations, Indian tribal governments and Alaska Native corporations, and REITs. To be eligible, energy-efficient property must be installed on certain types of buildings.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who employ certain targeted groups and employ them for at least 120 hours. Before employers can claim the WOTC credit, they first must receive certification that the new hire meets the qualifications of one of the targeted groups. Businesses can receive a credit of up to $9,600 per qualified individual.
Fuel Tax Credit
Another credit often seen in the construction industry is the Fuel Tax Credit. The Credit for Federal Tax Paid on Fuels is a program that allows some businesses to reduce their tax bill dollar-for-dollar based on specific types of fuel costs for nontaxable uses of gas. The Fuel Tax Credit encourages the production and use of fuel from renewable sources, but there are limitations as to the type of fuel that can be claimed.
If you think your business might qualify for any of these tax credits, make sure to consult with your tax advisor today.
About the Author:
Kelly Koman joined McKonly & Asbury in 2013 and is currently a Senior Manager with the firm. She is a member of the firm’s Tax Segment, working primarily on S-Corporation, partnership, and individual tax returns. She services clients in several industries, including construction, manufacturing, real estate, and affordable housing.