The Impact of Tax Cuts and Jobs Act on the Construction Industry
By: Pedro T. Rincon, Osborne Rincon CPAs
The Tax Cuts and Jobs Act contains many provisions that have a direct and significant impact on the construction industry. Here are a few examples:
Method of Accounting
Under old tax law, small contractors were able to postpone taxation on income from long-term contracts until they were completed or when cash was collected. Larger contractors had to use the percentage of completion method of accounting, which requires them to recognize income as the job progresses.
The act increased the $10 million gross receipts threshold to $25 million. Small contractors affected by this provision can change from percentage of completion to either the completed contract or the cash basis for contracts.
Business Entity Selection
Most contractors are organized as pass-through entities where their owners pay tax on the entity’s income at their personal tax rate. The major benefit of a pass-through entity is that, unlike with a C corporation, there is no double taxation on business income, including any gain on the sale of the business.
With the C corporation tax rate being reduced, the use of C corporations in the construction industry needs further examination. Not only will current business income be taxed at a lower rate, but double taxation may be avoidable in certain circumstances.
If you own a construction company and would like to further explore Tax Cuts and Jobs Act as it relates to your business, contact Osborne Rincon CPAs.
Pedro T. Rincon, CPA, CVA, began his career with Deloitte & Touche LLP, and by 2004, became a partner with Osborne Rincon CPAs. Pedro has over 20 years of experience with in-depth expertise in the industries of agriculture, construction, distribution, hospitality and not-for-profit entities. Osborne Rincon is one of the oldest and most respected full-service accounting firms in the Coachella Valley. To learn more, call (760) 777-7805 or go to www.OsborneRincon.com
Last modified: February 12, 2020