Kristin’s Construction Corner – Year-End-Reminders

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Construction Year-End Tips Video Transcript:

Hi, contractors. I’m Kristen Bailey, co-chair of our Construction Services Group here at KatzAbosch. I’m a Certified Public Accountant, a Certified Construction Auditor, and a Certified Construction Industry Financial Professional. Our Construction Services team will be pushing out monthly videos to keep you in the loop on all the new and exciting construction tax and construction accounting updates. I know 2020 has been a really crazy year, and a lot of new things have come out, and it’s pretty difficult to do any sort of planning for year-end, especially because we don’t know what’s in store for 2021. But I just wanted to take a few minutes to remind you of a couple of certainties we do know about for 2020.

The first one is bonus depreciation in Section 179. These both essentially allow you to write off as a deduction 100% of the cost of your equipment in the year that they were placed in service, instead of depreciating them over five or maybe seven years. So, this is a great tax benefit. There are certain pros and cons to each method, and if you have an equipment-intensive business or are planning on making a lot of equipment purchases before the end of the year, you definitely want to reach out to your KatzAbosch consultant to make sure that you’re using the method that’s best for you.

Another certainty is the 199A deduction. This allows construction companies that meet the qualifications to get a 20% deduction on their pass-through income. So, that’s income flowing through from an S-corp, an LLC, or a partnership. This means only 80% of your income is taxed, which is great. Now, there are certain limitations and then there’s also a specific strategy around maximizing this 199A deduction, so you want to make sure that you’re working again with your CPA to ensure you are set to maximize that deduction in 2020, because we’re not certain how much longer this deduction will be available.

Finally, there’s a new state deduction limitation workaround in the state of Maryland. If you’re a resident of Maryland and have a flow-through entity, again, an S-corp, an LLC, or a partnership, your flow-through entity can make an election to pay the state taxes at the entity level and get a federal deduction for those state taxes. We’re still waiting on guidance from the IRS and the state of Maryland, but it looks like this will benefit a lot of contractors in Maryland that have Maryland resident shareholders. So, definitely check in with your CPA regarding this potential deduction.

I know 2020 has been crazy, and we don’t know what’s going to happen in 2021, but hopefully, these couple of tips will help you with your year-end planning. Consider following us on LinkedIn or signing up for our newsletter or some updates at KatzAbosch.com.