Home construction businesses often reduce their tax burden by depreciating fixed assets (such as vehicles, machinery, and equipment), writing off expenses, and leveraging tax credits. A lot of tax credits go overlooked, leading to smaller home construction businesses spending more money on taxes each year.
State and federal tax credits reduce tax demands and allow businesses to maintain higher cash flow.
Tax credits and incentives that your business may be eligible for include:
1. Work Opportunity Tax Credit
The Work Opportunity Tax Credit is offered on the federal level and provides employers that hire workers in targeted groups with a tax credit. If you hire employees in the following categories, your business may be eligible for this credit:
- Veteran
- Ex-felon
- SNAP benefit recipient
- SSI recipient
- Long-term unemployed recipient
- IV-A recipient
- Long-term family assistant recipient
- Others
The federal government outlines all of the targeted groups that may be eligible under the credit. Eligibility will also depend on the hiring dates and the qualified status of the employee.
Tax credits range from $2,400 for a qualified employee to $9,600 for a veteran who is qualified.
If your company is considering hiring a veteran, the tax credit is another reason to hire from this group.
2. R&D Tax Credit
Construction companies can offset research and development (R&D) costs with the R&D tax incentive. Construction businesses that qualify for these incentives often don’t leverage them because they believe they’re only available to big businesses.
The R&D incentive is a dollar-to-dollar reduction and can be used to offset costs such as:
- Hiring and paying employees involved in R&D
- Supplies that were part of the process
- Contract costs, up to 65%, paid to others that were doing research
Qualifying for these credits requires a business to meet certain requirements. A business may be eligible for this tax credit if they were involved in:
- Creating or improving efficiency and reliability
- Designing of systems, such as plumbing or HVAC, for new usage or better efficiency
- Experimenting with materials or alternatives to create new infrastructure
- Improving or designing of green buildings
- Engineering and design that is unique
Home construction businesses can benefit from R&D tax credits for a lot of activities, including exploring new construction techniques, improving safety or quality, and building or improving equipment.
3. 45L Green Building Incentive
The 45L Green Building Incentive, or New Energy Efficient Home Credit, allows for contractors to receive a $1,000 to $2,000. The credit applies to homes that are up to three stories and varies depending on a few factors.
- If heating and cooling consumption are 50% below comparable buildings, a tax credit of $2,000 is available.
- Manufactured homes that do not meet the 50% mark may be eligible for a $1,000 credit if it meets Energy Star Labeled Home requirements, FMHCSS requirements and has heating and cooling reductions of 30% versus comparable homes.
The New Energy Efficient Home Credit is one that home construction businesses may be eligible to receive when focusing on energy-efficient homes.
4. Disabled Access Credit
Businesses that are accommodating of people with disabilities may be eligible for the Disabled Access Credit. Businesses will need to earn $1 million or less and have less than 30 full-time employees to be eligible.
The IRS credit is 50% of the eligible expenses between $250 and $10,250.
There’s also the Barrier Removal Tax Deduction, which allows for up to $15,000 a year in deductions for expenses relating to common barriers relating to people with disabilities, such as architectural and transportation. Removing barriers for the elderly or persons with disabilities to allow access to your business falls under this deduction.
Construction businesses can leverage and combine all of these tax credits to reduce their annual tax burden.
Contact us today to see what tax credits your business may be missing.