Here are our top 5 tax tips for contractors:
The QBID is the qualified business income deduction. Section 199A in the TCJA allows for “non-corporate taxpayers” to take up to a 20% tax deduction of their qualified business income.
Section 179 in the TCJA gives taxpayers the opportunity to deduct the cost of some property, like HVAC, fire protection systems, alarm systems and security systems, as an expense once it's “placed in service.”
These deductions may be valid full write-offs under section 179. There’s a lot of small notes like these throughout the tax code -- read it carefully, and take advantage of what you can.
How should you file your business taxes? Filing as an S corporation has many requirements, which can be found on the IRS website, but, in short, allows one to operate as a corporation but be taxed as a partnership.
Corporations who file as an S corporation avoid double taxation on corporate income by passing all income, losses, deductions and credits to shareholders, who file individually.
Another benefit to filing as an S corp? You won’t pay self-employment taxes on withdrawals. Income can be classified as salary and as distributions, which will significantly lower the price you pay.
Now, businesses with less than $25 million in sales (or “gross receipts”) have the ability to choose between the cash method of accounting and the accrual method.
There are pros and cons to the cash and accrual methods, though some small businesses prefer the cash method because it allows expenses to be tracked when they are paid, and revenues when they’re received.
Research and development credits may seem out of reach, but they’re actually valid for innovative expenses to the organization. Take careful stock of your operations, and make sure you’re not missing out on free credits.
Looking for more individualized help? Have specific questions, or just want some quick advice? Schedule a consultation with our tax experts, who know the contracting industry inside and out, on our website or give us a call at 801-467-1900.