Nearly five years ago, this Tax Techniques column was created to keep construction company owners and CFMs informed on specific tax issues and address them from a useful and practical perspective. 

This installment will highlight and include a summary of 17 of the most popular topics that have been covered throughout these years, which fall into three main categories:

1. Recaps of recent legislation or regulations and how it impacts contractors;
2. How-to articles that decipher and illustrate tax issues that affect all businesses and contractors; and
3. Analysis articles that focus on technical construction tax issues.

Naturally, readers should always consult their tax advisor before implementing any tax strategies, especially given that some content may no longer be current.

Recaps of Recent Legislation

“What If There’s a Downturn? Tax Implications for Contractors” from the January/February 2020 issue was intended to be an analysis of tax provisions that may prove difficult for contractors in the event of a downturn. And then COVID-19 impacted our economy, and this article proved to be a road map of issues that Congress should consider.

In fact, several of the tax issues in this article were addressed in the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act).¹ The inability to carryback net operating losses (NOLs) to generate cash was retroactively and temporarily addressed for NOLs generated in 2018 (as well as 2019 and 2020).² These NOLs can now be carried back five years, which is different from what was described in the article.

Also, individual taxpayers (i.e., S corporation shareholders) are no longer limited from fully using excess business losses carried forward to the current tax year.³ NOLs, along with a few other issues in this article (i.e., the limitations on interest expenses deductions⁴) were adjusted by Congress, albeit temporarily in some cases.

“Two 2019 Tax Laws Impact Multiple Years” from the May/June 2020 issue is a recap of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Disaster Act) and the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).⁵

This article highlighted the need for contractors to elevate discussions with tax advisors to ensure that available refund opportunities are pursued. There were several retroactive tax provisions permitting 2018 amended tax filings, which can result in tax refunds. This includes various extenders, such as §179D depreciation deductions, credits related to labor (i.e., work opportunity tax credit), the liberalization of and changes to retirement plans and distributions from these plans, etc. There are also new prospective tax deduction/credit opportunities like credits for establishing new company-sponsored retirement plans and others.

The Tax Cuts and Jobs Act (TCJA) passed in late 2017 spawned several articles. In the March/April 2018 issue, “Tax Cuts & Jobs Act: Reevaluating S vs. C Corporations” evaluated whether contractors should consider restructuring as a C corporation to take advantage of the new lower flat federal corporate 21% tax rate. One major issue is whether a C corporation should replace the S corporation as the new, ideal entity type for closely held businesses. The optimal answer is not straightforward and, as always, depends on the taxpayer’s specific circumstances.

The September/October 2018 issue tackled “The New Qualified Business Income: An Overview.” Beginning in 2018, taxpayers can deduct up to 20% of their income from pass-through entities such as S corporations and partnerships with certain limitations. The new qualified business income (QBI) deduction provides shareholders and partners of pass-through entities with an effective tax rate reduction so pass-through businesses are treated similar to C corporations under the TCJA.

The March/April 2019 issue looked at the change in the revenue threshold defining a small contractor with “The New Small Contractor Threshold: Transition Requirements for Tax Purposes.” Construction contractors are generally required to use the percentage-of-completion method (PCM) of accounting for long-term contracts for tax reporting purposes.

However, if a contractor’s average annual gross receipts are below a statutory threshold, then other tax reporting methods are permissible. The TCJA law permits an increased number of contractors to take advantage of the more favorable tax reporting methods such as the cash method and the completed-contract method (CCM).