Our Favorite Tax Credits for Construction Businesses in 2024
In the construction world, having sharp financial skills is just as important as having the right tools.
Every year, construction businesses face new challenges and opportunities due to changes in the economy, technology, and regulations. Finding ways to cut costs and boost efficiency is crucial for staying competitive and growing your business.
Tax credits are often overlooked but can make a big difference by lowering what you owe in taxes.
In this article, we’ll look into our favorite tax credits for your construction business, who qualifies, and how you can claim them.
1. Research and Development (R&D) Tax Credit
Top of the list is the R&D tax credit, a reward for those who tinker with innovation.
If you've invested in developing or improving your construction methods or technologies, you might just be leaving money on the table if you’re not claiming this generous credit.
The IRS conducts a four-part test to see if your business qualifies for it.
In a nutshell, this test requires your project to improve or develop a business component with clear scientific foundations. It also requires significant initial uncertainties about achieving your goals, which you attempt to resolve through systematic experimentation and testing.
To soften the financial hit of investing in R&D, companies may apply between 6% and 8% of its annual eligible R&D expenses directly against its federal income tax liability.
Another good news is that this credit is available not just for big corporations but also for small and mid-sized ones.
To caim the R&D tax credit, you simply need to file IRS Form 6765 and provide sufficient documentation to support qualifying expenses.
With this credit, investing in R&D feels less daunting for businesses, making it financially easier to pursue innovations in building techniques, eco-friendly materials, or safety improvements.
2. Work Opportunity Tax Credit (WOTC)
If, like most businesses in the construction industry, you also find it challenging to find skilled labor, consider a tax-savvy strategy.
Hire from taget groups who typically struggle to secure quality jobs to not only help fill your labor gaps but also earn valuable tax credits.
WOTC essentially rewards businesses that promote workplace diversity and facilitate easy job access for American workers.
The amount you can claim for WOTC is typically equal to 40% of up to $6,000 of qualified wages paid during the employee’s first year of work. So, generally, this means a maximum of $2,400 per qualified employee.
In some cases, the credit amount can be higher or lower for others due to differences in applicable percentages and qualified wages.
To claim this credit, use IRS Form 5884 when filing your annual tax returns.
3. Fuel Tax Credit
The Fuel Tax Credit is designed for businesses that use motor fuels for off-highway business purposes, such as operating heavy construction equipment.
Many construction companies may not realize they qualify for this tax credit, which can provide significant savings, especially if you frequently use heavy machinery on project sites.
This credit can apply to gasoline, diesel, or kerosene used in equipment that does not operate on public highways, such as bulldozers, cranes, and backhoes. The IRS offers different rates depending on the type of fuel used and its specific business application.
To benefit from this credit, you need to maintain accurate records of fuel purchases and usage. These records are crucial for calculating the correct amount of credit and for supporting your claims during any potential audits.
You can claim this credit by filing IRS Form 4136 with your tax return.
4. Section 45L Tax Credit
Does your construction business specialize in creating energy-efficient homes?
The Section 45L tax credit provides a substantial financial benefit for those committed to sustainability and reduced energy consumption.
For each qualifying new home or dwelling unit, this credit offers up to $5,000. To be eligible, these homes must meet specific energy-saving standards and qualify for the applicable date when someone buys or leases the home.
To claim the Section 45L tax credit, ensure that an eligible certifier has inspected and endorsed your properties as meeting the required energy standards.
You will need to file IRS Form 8908 with your tax return to receive this credit, along with relevant documents to support the claim.
Not only does this tax credit boost profits but also appeals to a growing number of eco-conscious consumers. It’s an excellent means for your company to stand out in the competitive market by promoting environment-friendly construction practices.
Trust the Experts
Just like a hard hat keeps you safe on the job, having a tax expert can protect you from mistakes and ensure you’re making the most of your tax breaks.
Handling taxes on your own might save money upfront but can lead to costly errors. With our help, you can avoid these pitfalls and maximize your savings.
Here at Atlas Accounting Group, we specialize in working with construction business owners like you. To get started and see how we can help, head over to our Getting Started page and book a quick introductory call.
Until next time!
