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By Ross A. Norman, CPA, and Associate Member, CFMA
It’s time for the snow to fly in Montana, which also means it’s a good time to proactively review year-end income and deductions for your construction company and do some planning before the New Year arrives. Owning your own construction business provides the opportunity for numerous deductions, but you also need to make sure you don’t become a target of the IRS.
Construction company owners face a myriad of challenges in today’s marketplace. Like many small business owners, you must deal with self-employment taxes and income taxes. Using an assumed federal income tax rate of 15%, a state income tax rate of 5%, and the actual self-employment tax rate of 13.3% yields a combined rate of 33.3%. Personal exemptions, standard deductions, and credits may help, but many small business owners also need to plan and save for taxes. In most cases, they must also pay quarterly estimated taxes. A good rule of thumb is to save at least one out of every four dollars for taxes. Work with your CPA or tax preparer throughout the year to plan for your current tax bill. And if you’re extending your line of credit, make sure your bank has budgeted for taxes.
As a best practice, consider reviewing your year-end tax rates and projecting what your tax rate may be next year. In some cases, it may be worth accelerating your income to capture a lower tax rate. This may be especially true with capital gains, as many taxpayers believe rates could be headed higher in the coming years.
Although the deduction for expensing equipment has been significantly reduced this year, it’s still worth considering. The 179 deduction for equipment purchases in 2012 is $139,000, which is down considerably from $500,000 in 2011. Watch for year-end changes in the law, as Congress may be willing to increase the 179 limit to stimulate the economy. Bonus depreciation for brand new equipment is 50% of the cost. While there are further limits on cars and trucks, making a purchase before year-end can still make sense, especially a truck or other SUV that is used in the business and has a GVW over 6,000 pounds. While equipment purchases can significantly reduce your current year tax burden, be careful not to spend your money just to avoid a tax bill. Only invest in equipment if it’s truly needed for your construction business.
One of your best purchases may be a new computer and software. The size of your business will largely determine the hardware and software needed. QuickBooks® for Construction Companies is an excellent software package if your business is small to medium-sized. Consider computerizing your bookkeeping system and using computerized checks. There are some interesting applications available that have been specifically developed to assist with your record keeping on the fly. If your construction business is larger, there are other excellent software packages to choose from, such as ComputerEase and Timberline.
Another excellent tax deduction is planning for an SEP-IRA or other retirement contribution. This is one way to soften the bite from your income tax bill; be aware, however, that it does not lower your self-employment tax.
As a construction contractor, review your independent contractor status. To avoid paying payroll taxes, some companies make the mistake of hiring “independent contractors” who technically qualify as employees. While many individuals work in the construction industry as independent contractors, you need to ensure the person qualifies for this status. While no two situations are alike, the amount of control, level of expertise, and other important facts will determine whether you have an employee or an independent contractor. Your CPA can offer guidance on how to determine whether someone qualifies as an independent contractor.
Finally, some thoughts on the type of business entity you should have. Currently, many attorneys are recommending LLCs or LLPs. However, don’t overlook a C Corporation as the next step from operating as a sole proprietor. I like C Corporations for net value up to $250,000. C Corporations offer ways to legitimately limit payroll taxes, and they have deductions other operating entities can’t offer. The big drawback of the C Corporation is that earnings may be double-taxed upon liquidation. If you have questions, consulting with your CPA or tax professional is a must.
Inside Public Accounting (IPA) has named Anderson ZurMuehlen & Co., P.C. to its “All-Star Firm” list.
Anderson ZurMuehlen was recognized for their of business valuation and employee benefits specialties. “All-Star” firms demonstrate that they derive a higher percentage of their total revenue from specialty practices than all other participating firms. This year, more than 430 accounting firms participated in the 22nd annual IPA Annual Survey and Analysis of Firms.
New Website Launched: azworld.com-Anderson ZurMuehlen Certified Public Accountants and Business Advisors
Helena, Montana-The azworld.com website provides information on client services in all industries with assistance in accounting, audits and tax as well as other more specialized areas. Azworld.com is a brand new website, created with the purpose of delivering information about Anderson ZurMuehlen. Features include enews registration and a client portal that provides access to personalized account information. Another feature of the new website is the staff profile. Clients can view biographies of shareholders and contact any staff for more information.
Anderson ZurMuehlen CEO, Don Laine commented, “We are committed to honesty, integrity and ethics in all that we do. From the beginning Anderson ZurMuehlen was based on the principle of building relationships and excellent client services. Today, our mission remains the same. Explore our website and contact us with questions.”
Anderson ZurMuehlen is the largest Montana-based accounting and business advisory firm with six locations throughout the state. For over 55 years, they have focused on client service and making financial and business decisions to meet individual needs.
125 People of Impact in Accounting Leaders who left a mark on the profession
“George Anderson – He served as chairman of the AICPA’s Special Committee on Standards of Professional Conduct in the 1980s, AICPA chairman in 1980–81, and principal in the firm Anderson ZurMuehlen. The special committee’s report led to the AICPA membership’s endorsement of the Plan to Restructure Professional Standards.”
Same people and same great service, just a new place!
Stop by and visit us at our new location 402 North Broadway, 4th Floor
AZ Technology Solutions has joined the Intacct Business Partner Program.
Intacct, a leading provider of cloud financial management and accounting software, is the first and only cloud financial management and accounting system AZ Technology Solutions offers. The decision to add Intacct to its portfolio was based on the firm’s belief that Intacct’s financial applications are superior to those of competing cloud-based systems, and Intacct’s strong multi-dimensional reporting and analysis capabilities are a perfect fit for the firm’s clients. AZ Technology Solutions was also impressed by the level of talent and experience on the Intacct channel team. As the consulting arm of a top accounting firm, AZ Technology Solutions likes that Intacct is the preferred provider of financial applications for the American Institute of Certified Public Accountants (AICPA).
AZ Technology Solutions has built a successful practice around on-premises accounting software from Microsoft and Intuit, but lately, clients seeking to lower costs and eliminate IT infrastructure requirements have been asking for a cloud-based alternative. Adding Intacct’s cloud financial management and accounting software to its portfolio allows AZ Technology Solutions to meet this demand, while expanding its market and accelerating business growth.
“Our mission is to provide services to our clients that will help them succeed – today and in the future,” said Don Laine, CPA and CEO for Anderson ZurMuehlen. “As a full-service accounting and business consulting firm, we only recommend solutions that provide solid internal controls, improve processes, help our clients track their financial data, and make it easy for them to analyze their critical business operations. Intacct fits that description perfectly and we view it as a critical component for our portfolio as we move forward and look to grow the technology services portion of our firm.”
AZ Technology Solutions clients are looking for ways to modernize their financial systems, automate key aspects of their business and reduce the burden of IT that comes with traditional on-premises software. Intacct provides robust financial applications that help companies automate processes, reduce cycle times and speed their financial close. At the same time, Intacct’s cloud computing platform eliminates the need for companies to support their own financial management software and hardware, while providing enterprise-class backup and disaster recovery – enabling them to focus on their core business.
AZ Technology Solutions also has plans to leverage Intacct’s rich, web-based tools and flexible cloud application development platform to build custom applications for clients. The firm sees this as an opportunity to move into new markets and provide added value to its clients.