Construction Tax Law Changes

Tax Breaks on the Chopping Block: A Look at Expiring TCJA Provisions

The TCJA introduced numerous tax benefits for both individuals and businesses. However, several provisions impacting construction companies are scheduled to expire on December 31, 2025, potentially increasing tax liability. Here’s a closer look at some key expiring benefits:

• Individual Tax Rates: The current top individual tax rate of 37% is slated to revert to 39.6%. This could significantly impact construction business owners who operate as sole proprietors or S corporations, where business income is taxed at individual rates.
• Gift and Estate Tax Exemptions: Currently generous gift and estate tax exemptions are scheduled to be significantly reduced. While this may not directly impact day-to-day operations, it’s a consideration for construction business owners with substantial estates who may want to explore tax-saving strategies like succession planning.

Provisions Specific to Construction Businesses:

Beyond the individual tax implications, several provisions directly impacting construction businesses are set to expire:

• Section 199A Deduction: This deduction offered tax relief to pass-through entities like many construction businesses. The Section 199A deduction allows for a deduction of up to 20% of qualified business income (QBI). Its expiration could substantially increase tax burdens for construction companies that rely on this benefit.
• Employer Credit for Paid Leave: The TCJA introduced a credit to incentivize businesses to offer paid family and medical leave. Its expiration could impact employee benefits programs and potentially make it more expensive for construction companies to compete for skilled labor.
• Accelerated Depreciation: Bonus depreciation allowed for immediate deduction of a significant portion of asset purchases, like heavy equipment and vehicles, crucial for construction businesses. This benefit is being phased out, potentially impacting cash flow and investment decisions.

Strategies for Construction Businesses

The sunsetting of these TCJA provisions presents both challenges and opportunities for construction companies. Here are some strategies to consider:

• Review Tax Strategy: Evaluate your current tax strategy and consider how expiring benefits might impact your business. Consulting with a tax advisor specializing in construction can provide valuable guidance.
• Accelerate Income (if applicable): For construction businesses operating as sole proprietors or S corporations, accelerating income into 2025 could allow them to take advantage of lower tax rates and higher standard deductions before they expire.
• Evaluate Tax Accounting Methods: Several tax accounting methods, such as the accrual method, can help align tax payments with contract revenue. Consulting with a tax professional can help determine the most suitable method for your business.
• Plan for Major Purchases: If you anticipate needing to make significant equipment purchases in the coming years, consider doing so before bonus depreciation is further reduced.
• Combine Deductions: In some cases, construction companies can potentially combine bonus depreciation with the Sec. 179 deduction, which allows for first-year expensing of qualified assets, for even greater tax savings.

Don’t wait until the last minute to prepare for the potential impact of expiring tax benefits. By proactively planning and strategizing, construction businesses can minimize the financial burden of these changes and ensure their continued success in the years to come.