Provisions of the first major tax overhaul in decades offers contractors new ways to file that can have a dramatic impact on their tax burden.
For example, the many construction companies that are pass-through entities – S corporations or partnerships/LLCs – will benefit from the new 20% deduction for qualified business income. The deduction impacts taxable income rather than adjusted gross income. Calculating the deduction is complicated, but the bottom line is that this provision does provide tax relief for many small businesses, as it lowers the effective top tax rate on business income from 39.6% to 29.6%.
Other changes you'll want to explore include:
- A couple of ways to expense 100% of qualified new or used property, for a limited time
- Expansion of the companies eligible to use the cash accounting method
- Exemption from percentage-of-completion treatment for contracts expected to be complete in two years
- Changes to taxation of different types of corporations that may change a company’s S corp election or encourage converting a partnership to a C corp.