2020 Packed More Than COVID, Tax Changes Have Hidden Dips as Well

With all the changes that have occurred in 2020 impacting taxes for construction firms, now comes the headache of what to address for reporting. Make the wrong decisions, and it could result in a dramatic hit that could be preventable. Many of the latest tax changes were passed with the COVID-19 federal assistance packages enacted in mid-2020 under the CARES Act. Here are some of the big issues to watch out for:

• Watch property tax depreciation deductions closely. New bonus depreciation applies on property acquired and put in business function after September 2017. Missing this deduction could leave serious money on the table that provides big deduction savings.
• New tax credits were included in recent law changes for research and development. This was part of a tax policy to boost energy efficiency in building design and construction. It ends in 2020 but the tax credit is a dollar-for-dollar saving, unlike a deduction.
• The 9% domestic production activities deduction per Section 199 of the tax code jumped up with the new 20% Qualified Business Income deduction per Section 199A. Again, consider this item for the related tax savings.
• Smaller businesses have greater flexibility in which accounting method they can use per the latest tax changes, which can affect reporting revenues and related tax basis amounts for 2020.

In addition to the above, those tax planning in 2021 should stay alert as more changes are expected. With a new administration and shift in Congress, there are likely to be more realignments in tax laws and additional updates over the next year. Congress isn’t likely to reduce taxes further. In fact, the opposite might occur with the government already extended pretty far from the relief provided in 2020.

Firms should also keep a strong eye on cash flow versus just focusing on revenues. The difference between the two has caught more than one firm unaware as revenues looked rosy, but cash flow was deficient and payroll compromised, triggering expensive last-minute financing cushions.

Baldwin CPAs has always been available to help in these matters and is ready to do so with 2020 tax reporting and planning as well. Unlike previous years, the 2020 tax period has a lot of minefields to get caught in, and tax expertise matters tremendously in keeping your construction business ship upright and out of bad areas.