The United States Congress recently signed the Tax Cuts and Jobs Act, and it is the most important tax reform legislation that is beneficial to business in the country particularly construction firms. But what is the tax reform all about?
In a nutshell, this tax reform means construction companies that are structured as C-Corporations will only pay taxes with a flat rate of 21%. However, do remember that construction firms are not entirely structured as C-Corporations. Some are structured as Sole-Proprietorships, S-Corporations, Limited Liability Companies (LLCs), and Partnerships. As such, the tax reform includes a 20% deduction of all qualified business income. The tax break is effective from 2018 to 2025.
Aspects of the Tax Reform
This tax reform repeals 20% of corporate alternative minimum tax (AMT). This then requires construction firms to maintain two separates of account books. The repealing of the AMT will simplify the book-keeping and accounting of many construction firms and, as a result, lower the associated costs. But more than these aspects, below are the fundamental aspects of the tax reform:
Cuts corporate tax from 35% to 21% to companies that are structured as C corporations.
Companies that are pass-through entities get 20% deduction on their tax return.
Construction companies with $25 million (or less) of gross receipts for the previous free tax periods can use the cash method for accounting.
Private activity bond financing retains a tax-free status thus allowing more funds flowing to the public construction sector.
Positive Impact of the Tax Reform
The changes that are brought about by the tax reform has led to the stimulation, and significant growth within the construction sector as more firms can enjoy more capital to invest and more flexibility due to less regulation. Below are the positive impacts of the tax reform on construction firms:
Drives consumer demand: There is a solid confidence between the consumers and construction firms. The tax cut results in savings of more than $2,000 annually. Having more funds increase consumer demands when it comes to goods and services provided by the construction company.
More cash means more to reinvest: Having more capital allows construction firms to reinvest their money. While some companies invest to buy back stocks, others invest through capital expenditures or increases in the benefits of their employees. The tax deduction results in having more for their investment, thus encouraging growth, not only for the company but also for the community and economy as a whole.
Brings work and cash back home: The tax reform will serve as a strong incentive for construction companies to bring investments back home. Since some companies have branched out offshore, because of the tax reform law, some firms will bring work and cash back home.
The new tax reform will mean a lot of changes when it comes to taxes. Learn about business tax tips so that you can take advantage of the new tax reform. With MKS&H, you will be working with a team of reliable accountants who will help and guide your firm through the complicated waters of the new tax law. Contact us today for assistance!