How can the DPAD help construction companies save?
The Domestic Production Activities Deduction (DPAD) is a term that every owner of a construction company should know. It is a free tax deduction that is allowed for any US company that produces goods. While this deduction is often called the manufacturer’s deduction, it truly is much broader than that. Not only do construction contractors qualify for this deduction, but so do those providing architecture and engineering services to construction contractors.
In July of 2015, the Financial Accounting Standards Board (FASB) issued Update 2015-11 Inventory (Topic 330), which will amend guidance within Topic 330. If you are currently valuing your inventory using a method other than Last-in, First-out, (LIFO) or the retail inventory method, you need to make sure you are aware of this update to implement and follow it. This standard was written as part of FASB’s Simplification Initiative and should hopefully simplify your valuation of inventory approach. What this update does is change the approach to value inventory from a lower of cost or market test, to a lower of cost and net realizable value approach. The following is further information on what you need to be aware of and consider when implementing this update.
Of course, as a company owner, you prefer your company’s tax liability to be as small as possible. Transfer pricing is a gray area of business tax law that is becoming increasingly more challenging for taxpayers who are multinational enterprises (MNE). Proper transfer pricing practice through strategic tax planning can reduce your overall tax liability while ensuring compliance with government regulations.
To help you remain on the right side of transfer pricing, and to help you avoid an IRS audit as a result of poor transfer pricing planning, we’ve compiled some basic information and direction. In addition, the MKS&H accounting experts are available to answer your specific transfer pricing questions and help you remain compliant.
When clients call me looking to create tax deductions before year end, I generally deliver the bad news that if they want to bring their taxable income down they are going to have to spend some of their money or at least put it in a restricted account. This, however, is not necessarily the case with clients working in the construction industry. Clients in this industry do have an opportunity to create tax deductions for jobs that they have already completed that vastly exceeds any additional cash they will need to spend to create those deductions.
This elusive opportunity, to magnify the deductibility of cash outlays, is called the “179D Deduction”. The 179D deduction is available to the owner of a building that meets certain energy efficiency guidelines. More importantly for those of you who own or manage a construction, engineering or architecture firm; the government has the ability to allocate a 179D deduction to a contractor, engineer or architect who designed a newly constructed building or upgraded building system.
If you paid $10 or more in gross royalties or $600 or more in rents or compensation to a person who is not an employee or to an unincorporated business you are most likely required to report the amount on a Form 1099. The payments have to be made in the course of your trade or business during the calendar year. Generally, any person, including a corporation, partnership, individual estate, and trust which makes reportable transactions must file a Form 1099. The type of reportable transaction determines the specific Form 1099 which must be filed. One of the most common forms 1099 issued is Form 1099-MISC. Form 1099-MISC is required for each person to whom you have paid during the year:
On February 25, 2016, the Financial Accounting Standards Board (FASB) released new guidance on leases. The amendment goes into effect for fiscal years beginning after December 15, 2018, including interim periods within these fiscal years. This is an important change to be aware of, as it places most leases on the balance sheet and stops companies from only including them as footnotes.
This could be a major adjustment for manufacturing companies, especially for those with operating leases on equipment that they use on a day-to-day basis. Read More
The main goal for a construction contracting company is to carry out a construction project’s work in a way that meets the project’s objectives, at a high level of quality. It is up to the project manager to meet these objectives, which can occur through the completion of four phases: initiation, planning, execution, and closing. Once these phases are finished, the contract is deemed complete.
Together, these four phases are known as the contract life cycle. One important aspect that runs across the four is effective management. Aspects of management that include communication, documentation, and budgeting are all critical to a successful project.
Here, I’ll explain each of the phases of the life cycle in greater detail, along with a discussion of some of the benefits of using life cycle management.
In business, trust gives you a true competitive advantage over your competitors, for some pretty obvious reasons. But often, organizations don’t pay attention to building and maintaining that level of trust with their clients, prospects, and vendors. They allow their employees to remain too focused on being the technical experts they believe their clients need, or worse, laser focused on making a profit.
Creating that critical trust isn’t difficult. But it does require a mindset change, at least in the beginning. Your employees need to step out of their comfort zones, to show customers and prospects how you are just what they need, when they need it. You must also be open to the fact that this expanded role may not always include the primary service you provide. You, and your employees, want to become the first place an organization thinks to contact when they have a question or a concern, or place an order.
Change – Some people say that’s what our country wants, and the accounting standard setters have delivered!
The change is related to accounting for warranties. The good news is that the differences between accounting for warranties under current generally accepted accounting principles and the new revenue standard are minimal. Warranty accounting itself remains unchanged, but warranties will need to be accounted for as separate performance obligations under the new standard, if they provide the customer with additional services. (A performance obligation is defined as a promise to transfer a good or service.)
Have you thought about how giving business gifts, as we head into the end of the year, can strengthen your relationships with your clients and even your vendors?
Hopefully you’re providing services throughout the year that meet your customers’ needs, and you are also communicating with them regularly so they remember you when they need what you offer.
But in case you haven’t talked to them in a while, that doesn’t necessarily mean you’ve lost the relationship. Sending the right business gifts at the end of the year can provide several benefits. Read More