A 2024 survey conducted by consultancy FMI in partnership with the Construction Financial Management Association found that 58% of contractors who responded didn’t have an “ownership transition plan” in place. What’s worse, half of the construction business owners surveyed who planned to retire in three to five years had no plan at all. The data also showed that fewer contractors were developing formal succession plans than when the survey was last conducted in 2020.

With so much on your plate, it’s understandable that you might put off succession planning. (Kudos to you if you haven’t.) But dragging your feet reduces the odds that you’ll be able to hand off the business you’ve spent years building in a manner entirely of your own choosing. Here’s some food for thought, even if your anticipated departure is far down the road.

A 2024 survey conducted by consultancy FMI in partnership with the Construction Financial Management Association found that 58% of contractors who responded didn’t have an “ownership transition plan” in place. What’s worse, half of the construction business owners surveyed who planned to retire in three to five years had no plan at all. The data also showed that fewer contractors were developing formal succession plans than when the survey was last conducted in 2020.

With so much on your plate, it’s understandable that you might put off succession planning. (Kudos to you if you haven’t.) But dragging your feet reduces the odds that you’ll be able to hand off the business you’ve spent years building in a manner entirely of your own choosing. Here’s some food for thought, even if your anticipated departure is far down the road.

The Case for Planning

We get it. You’re busy generating bids, managing multiple projects, engaging in strategic planning and doing everything else that’s part and parcel of running a construction company. Retirement may seem far off. And addressing other things that might force you out of your leadership role, such as disability or death, isn’t easy.

However, succession planning is essential for contractors who want their businesses to carry on after they retire or otherwise leave the company. Beyond preserving the business, it helps secure your family’s financial future and ensures operations continue in line with your mission, vision and values. But for that to happen, you need a succession plan that accomplishes your goals, whether those are to keep the company in the family, contribute to your retirement funds, provide opportunities to valued employees or some combination thereof.

Moreover, failure to plan can lead to confusion and uncertainty after your departure, which could, in turn, impair your company’s value. This is particularly true for owners who are well known and liked by employees, customers and the community. If you aren’t replaced by someone whom you clearly endorse, workers may jump ship and customers might take their business elsewhere. Lack of a succession plan in a family-owned business can also trigger acrimonious disputes between family members that have a ripple effect on employees, customers, vendors, lenders and sureties.

Transfer Methods

Your decisions on some key issues will drive your succession plan. Perhaps the most important is how you’ll transfer ownership.

For family-owned companies, an intrafamily transfer is a viable option, whether through a gift or a sale. The former offers flexibility. For instance, you can transfer the entire business at once or gift shares over time while retaining some degree of control and income. Alternatively, you can gift or sell shares to an irrevocable trust with family members as beneficiaries.

If you sell your construction company to family members outright, you have several options for structuring the sale. For example, you might set up an installment sale so you can rely on regular payments in retirement and defer (and possibly reduce) taxes. The sale price for family members is usually less than that for a third party, but you may minimize risks such as layoffs or a drastic change in company culture.

You’ll need to consider the estate tax implications as well. For instance, gifting would reduce your taxable estate but eat away at your estate tax exemption. The good news is this may be less of a concern with the current federal estate and gift tax exemption set at $13.99 million for individuals ($27.98 million for married couples). Starting in 2026, the exemption will increase to $15 million ($30 million for married couples), with annual inflation adjustments going forward. All that said, gifting can create family drama over “fairness”, especially if you have children who aren’t involved in the business.

If your company isn’t family owned or you don’t intend to pass ownership to family members, you could sell it to a third party or private equity group. However, attracting an outside buyer may require you to first strengthen your financials to make the business more appealing. This can take time, potentially delaying your departure.

Construction companies with strong leadership teams and workforces should at least consider an employee stock ownership plan (ESOP). With an ESOP, you can sell your ownership interest over time to a trust that holds shares for employee-owners. Or the ESOP can use financing to buy shares, with the business contributing cash annually to cover the principal and interest payments. Bear in mind, though, that ESOPs are legally prohibited from paying more than fair market value for shares.

Many Paths to Take

We’ve only scratched the surface of succession planning for contractors. The point is, there are many paths to protecting your financial future and preserving your construction company’s legacy. We can help you choose the right direction for your succession plan and assist you in making any necessary course corrections.

Contractors: Don’t blame yourself if you’ve been running on the assumption that your company is ineligible for the federal research and development (R&D) tax credit. Many people believe the potentially lucrative tax break is available only to organizations in industries commonly associated with experimentation and innovation, such as technology and life sciences. But construction businesses may indeed qualify for the credit, sometimes without knowing it, and even if they don’t report profits in a given tax year.

Construction businesses shouldn’t overlook the R&D credit

Contractors: Don’t blame yourself if you’ve been running on the assumption that your company is ineligible for the federal research and development (R&D) tax credit. Many people believe the potentially lucrative tax break is available only to organizations in industries commonly associated with experimentation and innovation, such as technology and life sciences. But construction businesses may indeed qualify for the credit, sometimes without knowing it, and even if they don’t report profits in a given tax year.

How does it reduce taxes?

Under Section 41 of the tax code, the R&D credit generally equals 20% of the excess of a company’s domestic qualified research expenses (QREs) for the tax year over a base amount. The base amount is usually calculated in part based on the taxpayer’s average gross receipts for the four most recent years. QREs include:

• Wages for employees involved with the research,
• Supplies to conduct the research,
• Amounts paid to rent or lease computers for research purposes (including many cloud-computing arrangements), and
• 65% of amounts paid or incurred for contractors involved with the research.

Notably, for some taxpayers, the credit isn’t applicable only to offset income taxes. Qualified small businesses (QSBs) can also apply up to $500,000 annually for five years against payroll taxes. That means you can benefit even if you have a loss for the year.

QSBs are corporations (including S corporations) or partnerships with 1) gross receipts of less than $5 million for the tax year, and 2) no gross receipts for any tax year in the preceding five-year period ending with the tax year. Note that the payroll credit first reduces an employer’s Social Security tax for the quarter, then it reduces the employer’s Medicare tax for the quarter. Any remaining excess carries over to the next quarter.

Corporations without publicly traded stock, partnerships and sole proprietorships whose average annual gross receipts for the preceding three-year period don’t exceed $50 million also have the option to offset the alternative minimum tax. Members of controlled groups, businesses under common control and affiliated groups are treated as employed by a single employer for purposes of this gross receipts test.

Which activities qualify?

To claim the R&D credit, your construction business must generally satisfy the following four factors:

1. It must perform research to eliminate technical uncertainty about the development or improvement of a “business component.” This is generally defined as a product, process, technique, formula, invention or type of software.
2. It needs to undertake the research to discover information that’s technological in nature. In other words, your efforts must be based on physical, biological, engineering or computer science principles.
3. It must intend to apply the research to develop a new or improved business product or process.
4. Its research activities must substantially be elements of an experimentation process related to a new or improved function, performance, reliability or quality.

While these requirements may seem daunting, you’d be surprised how many of your company’s activities might satisfy them, especially in today’s innovative construction environment. Qualified research activities could include:

• Exploring alternative project delivery means and methods (before work begins),
• Testing constructed systems throughout a job,
• Improving building components (for example, to withstand natural disasters or improve sustainability), and
• Developing construction models.

If your business engages in such activities, or has in the recent past, you could qualify for the credit or a refund that trims your tax bill and reduces your effective tax rate and estimated tax payments.

What documentation is needed?

The IRS has heightened the information requirements for refund claims. So, comprehensive documentation is essential. Claimants must identify all business components to which the refund claim relates for the relevant year. Also, for each component, you need to:

• Identify all research activities performed,
• Name the individuals who performed each activity (or provide their titles or positions),
• Describe the information each individual sought to discover, and
• Provide the total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expenses for the tax year.

In addition, you’ll have to keep contemporaneous records to fulfill those requirements, including payroll and hours (divided between qualifying and nonqualifying activities), third-party contracts and invoices, and detailed documentation of the research process.

Who can help?

Although potentially beneficial, the R&D credit is far from simple. We can help you determine whether your construction company qualifies for the tax break. If it does, we’d be happy to assist you in documenting your research activities and claiming the credit come tax time.

Comprehensive insurance coverage might seem like a luxury for many contractors. After all, you’re likely dealing with rising costs from supply chain uncertainties, tariff-impacted materials prices and a tight labor market. However, these conditions make financial protection more important than ever.

We can help you put together the optimal insurance mix tailored to your construction company’s circumstances. But in the meantime, here are nine essential policy types to consider if you don’t have them and to review carefully if you do:

1. General liability. Sometimes called comprehensive general liability, this coverage kicks in when your business is sued for bodily injury, property damage or personal injury allegedly caused by your operations. For example, it may cover claims of defamation or invasion of privacy. General liability policies are sometimes required by law or under some contracts.
2. Commercial property. This type of insurance provides coverage if you suffer qualifying losses to your owned or rented building, tools, furniture, inventory or equipment. Generally, such losses must arise from fire, burglary, theft, wind or lightning. A policy pays part or all of the costs to repair or replace business property damaged by a covered occurrence.
3. Business interruption. This policy will compensate you for income lost if you’re forced to suspend normal operations because of physical damage to your property or a civil order requiring your business to close. It also typically covers losses from specified natural disasters, theft and vandalism, but excludes those caused by events such as epidemics and viral or bacterial contamination.

Note: Many insurers allow you to bundle general liability, commercial property and business interruption insurance into a single policy known as a business owner’s policy.

1. Commercial auto. Does your construction company use vehicles as part of its operations? If so, you’re probably aware that personal auto coverage generally won’t cover accidents that occur while a vehicle is being driven to or from a jobsite, used to make equipment or materials deliveries, or operated for some other business purpose. Commercial auto, or commercial truck, for large vehicles such as dump trucks and cement mixers, usually covers accidents, as well as theft, damage from natural disasters and vandalism.
2. Cyberliability. Hackers don’t restrict their nefarious activities to large corporations, financial firms and health care systems. Any business that collects and stores sensitive data can be targeted, and that includes construction companies. Cyberliability insurance generally covers regulatory fines and penalties, litigation expenses, and response costs. For instance, it may cover investigating incidents and notifying customers affected by a data breach.
3. Builder’s risk. Also known as cost of construction coverage, these typically short-term policies apply to buildings and other structures undergoing development, construction or renovation. A policy may also cover equipment and machinery used in the process, as well as temporary structures (such as scaffolding), paving, fencing and new landscaping.

Coverage generally applies only to damage caused by fire, weather, theft or vandalism. Damage from earthquakes or flooding is usually excluded. Many project owners have builder’s risk insurance, so contractors may not always need to buy it.

1. Errors and omissions (E&O). Also known as professional liability insurance, this type of coverage may sound like it’s intended for doctors or lawyers. However, any business that might be confronted by an unsatisfied customer claiming the company made mistakes while providing services should consider it. E&O insurance is typically limited to financial damages, with claims for property damage or bodily injury falling under general liability insurance.
2. Inland marine. This type of coverage usually applies to equipment, tools and movable materials that are stolen or damaged in transit, on a jobsite or in storage. It may apply to mobile equipment (such as forklifts and cranes), leased equipment and computer equipment (for example, laptops and tablets). The insurance generally provides replacement cost or actual cash value and may also cover related costs, such as those resulting from project delays caused by a covered incident.
3. Wrap-up. These policies, whether owner-controlled or contractor-controlled, are typically applicable to large construction projects. Wrap-up insurance is designed to provide sweeping coverage that:

• Shields the owner, general contractor and subcontractors, and
• Bridges gaps that can arise when all these parties buy individual liability policies.

It can include general liability, builders’ risk, pollution liability, commercial vehicle and other types of coverage, all in a single policy. With such extensive protection, though, wrap-up insurance often comes with a hefty price tag.

Construction companies operate in a complex environment when it comes to payroll, benefits and compliance. While other types of businesses can compensate most groups of employees under one regular pay rate, contractors must deal with many variables, including multiple pay rates, prevailing wages and worker classification. Then there are issues such as administering fringe benefits and managing workers’ compensation insurance. If your staff is struggling to keep up with it all, you may want to consider engaging a professional employment organization (PEO).

Could a PEO help your construction business overcome HR challenges?

Potential Advantages

Essentially, a PEO is a human resources (HR) outsourcing provider. If your construction business engages one, you form a “co-employment” relationship. Your business generally retains control over hiring and firing decisions, as well as day-to-day employee performance management. Meanwhile, the PEO acts as the employer for purposes of most HR and benefits administration functions.

Partnering with the right PEO under a mutually beneficial agreement offers a variety of potential advantages, including:

Improved fringe benefits. Because PEOs pool their clients’ employees, they typically have access to high-quality health insurance and retirement plans, as well as other benefits. These offerings are typically too expensive or difficult for smaller companies to administer.

Smoother payroll and tax administration. A PEO can relieve your construction business of many of the burdens associated with payroll processing, including tracking hours, withholding and remitting taxes, and distributing checks.

Lower workers’ comp costs. When you partner with a PEO, your employees are usually covered by its master workers’ comp policy. Premiums are based on the PEO’s experience modifier rate, which can translate into substantial savings for your company. The PEO can also save you time and money by handling claims.

More sophisticated HR services. Many PEOs provide end-to-end HR services, helping you search for talent and recruit employees. They can even handle onboarding and training.

Tighter compliance. PEOs typically have the expertise to help your construction business comply with various federal and state laws related to health insurance, retirement plans, protected information and employee safety. They can also handle unemployment claims. Some PEOs even provide safety audits and training programs.

Loss of Control

As with any outsourcing arrangement, using a PEO means relinquishing control over certain essential operational functions while remaining liable for related compliance issues. That’s a noteworthy risk.

One area where you may be able to shift liability to a PEO is tax compliance. Ordinarily, a company’s “responsible persons” are personally liable for any willful failure to collect and remit payroll taxes, even if that responsibility has been delegated to others. This includes owners, officers and certain employees.

There’s an exception, however, for PEOs that have been certified by the IRS. Certified PEOs are solely responsible for their clients’ payroll tax obligations, allowing those clients to avoid liability for payroll tax compliance issues.

Important: Because job costing must be done at the company level, many contractors must do their own payroll. This could limit the practicality of a PEO arrangement. However, there are construction-focused providers that may include job costing in their payroll services.

Substantial investment

Make no mistake, engaging a PEO entails a substantial investment. Some PEOs charge a fee based on a percentage of total payroll, while others apply a per-employee fee. It’s critical to compare different providers and find a pricing structure that fits your construction company’s budget and operational needs. Please contact us for help exploring the strategy further and analyzing all the costs involved.

Among the most common challenges of any long-term construction project are fluctuating job costs. However, variations in the cost of materials and labor over time aren’t the only cause for concern. Permitting issues, economic changes and evolving regulations can all contribute to a total project cost, and, in turn, taxable profit, that differs significantly from the original estimate.

In the meantime, you’ve got to pay federal income taxes based on your estimates. The look-back method is a tax accounting technique that construction businesses and the IRS rely on to 1) adjust taxes paid on long-term contracts to reflect actual profit or loss, and 2) recover interest on income taxes that were over- or underpaid during the project.

Although executing the look-back method should be done only in consultation with your CPA, construction company owners and their leadership teams should still familiarize themselves with the technique so they know what to expect.

Basic Rules

The look-back method (or just “look-back” for short) typically applies to long-term contracts accounted for under the percentage-of-completion method (PCM) or the percentage-of-completion-capitalized-cost method (PCCM). For tax purposes, long-term contracts are generally considered those started in one tax year and not completed until a later tax year.

For long-term contracts reported under the PCCM, look-back applies to the portion of the contract that’s subject to the PCM (70% for long-term residential contracts with four or more dwelling units). In addition, it applies to long-term contracts that must be reported under the PCM for alternative minimum tax (AMT) purposes, including the remaining 30% on long-term residential contracts, when applicable.

In the year of completion, the income from covered contracts is allocated among the previous tax years based on the actual contract price and costs instead of the estimated figures. In the case of an underpayment, the construction business must pay look-back interest on the shortfall.

If the reallocation reveals that the construction company paid the taxes on an accelerated basis, because it overestimated gross profits on a long-term contract in an earlier year, the business is entitled to a refund of interest on the overpayment. The amount of look-back interest received, and any additional interest received on the look-back interest (which often occurs because the IRS doesn’t immediately pay a refund due), is included in taxable interest income for the tax year it’s received or accrued.

Important: The look-back method doesn’t change the total amount of taxes paid on a long-term project. It simply accounts for timing differences through interest. Estimated tax penalties don’t apply.

The look-back method also applies to any post-completion tax year in which you must adjust the total contract price or total allocable contract costs. This might occur if, for example, you receive additional income from the settlement of a dispute regarding a contract after completion.

Examples of Exemptions

An exemption from having to carry out the look-back method may be available under certain circumstances. Generally, look-back doesn’t apply to:

• Home construction contracts,
• Contracts completed within two years of the contract start date with a gross contract price that doesn’t exceed the lesser of 1) $1 million, or 2) 1% of the taxpayer’s average annual gross receipts for the three tax years preceding the tax year of completion (known as the mandatory de minimis exception), and
• Contracts under which the cumulative taxable income for each previous year is within 10% of the cumulative look-back income for each previous year if the taxpayer elects not to apply the look-back method (known as the elective de minimis exception).

Cumulative look-back income or loss is the amount of taxable income or loss a construction company would have reported if it had relied on the actual contract price and costs rather than the estimated figures.

A “non-home” construction contract that isn’t completed in the same tax year it’s entered into is generally subject to the PCM and, therefore, the look-back method, unless the construction business in question qualifies for the small contractor exemption.

To be eligible for this exemption, a construction business’s annual average gross receipts for the preceding three tax years can’t exceed $31 million. (This is known as the “annual gross receipts test,” and the revenue amount is inflation-adjusted annually.) In addition, when entering into the contract, the contractor must estimate that the project will be completed within the two-year period beginning on the contract’s commencement date.

If, however, you’re required to use the PCM for AMT purposes, you must also apply the look-back method for calculating your AMT liability.

Complex Requirements

We’ve touched on only a few points regarding the look-back method and the related tax accounting methods. Additional conditions and rules may apply to your construction company’s situation. Please contact us for help with the complex requirements involved in recognizing revenue from long-term contracts.

The construction industry has made great strides in overcoming the outdated perception that it’s rife with corruption. Unfortunately, the fact remains that contractors lose hundreds of thousands of dollars a year to occupational fraud.

As formally defined by the Association of Certified Fraud Examiners (ACFE), occupational fraud is: “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

The ACFE’s reporting on the prevalence of fraud is widely read throughout the business world. Let’s review what its latest report says about the construction industry.

A Review of Inventory Accounting for Construction Companies

Target these Vulnerabilities

In the ACFE’s most recent fraud survey, Occupational Fraud 2024: A Report to the Nations, construction ranks fourth in the “Top 5 median losses by industry,” with a median loss of $250,000. Only mining, wholesale trade and manufacturing had higher median losses. The average loss per case across all industries was $1,662,000.

Obviously, it’s tough to stop fraud unless you know where to look. According to the ACFE report, the most common occupational fraud schemes in the construction industry were:

• Corruption, such as bribery or conflicts of interest (52% of cases),
• Billing schemes, where an employee submits invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases (38% of cases),
• Noncash misappropriation, where an employee steals or misuses noncash assets, such as inventory, equipment or confidential customer information (25% of cases),
• Fraudulent expense reimbursements, such as submitting fake receipts or presenting documentation for the same expense more than once (25% of cases), and
• Payroll schemes, where an employee makes false claims for compensation, such as claiming overtime for hours not worked or adding ghost employees to the payroll (23% of cases).

After reading those examples, consider whether and how those crimes or others like them could strike your construction company. Do you have adequate antifraud measures in place, or are there parts of your business vulnerable to wrongdoing?

Rely on Internal Controls

A strong internal control system is critical to preventing fraud. Common examples include background checks, segregation of duties, dual authorization of sizable payments and management review of major processes. Per the ACFE report, nearly half of reported fraud cases occurred because of either a lack of internal controls (32%) or an override of existing controls (19%). Another 18% were attributable to a lack of management review.

Historically, the ACFE has recommended a variety of antifraud controls as particularly effective in detecting fraud early and minimizing losses. These include:

• Fraud hotlines (the most common detection method),
• Job rotation / mandatory vacations,
• Surprise audits,
• Proactive data monitoring/analysis,
• Antifraud policies,
• Formal fraud risk assessments,
• Antifraud training,
• Codes of conduct, and
• Dedicated fraud departments or functions.

Interestingly, in the 2024 ACFE report, web-based reports were the common fraud-reporting mechanism, coming in at 40%. Email was next at 37%, and good old-fashioned telephone hotlines came in last at 30%.

Stay Vigilant

Every construction company’s risk of occupational fraud differs depending on its size, workforce and other factors. However, one thing’s for sure, no construction business is immune from this very significant threat. Be sure to stay vigilant. We can help you assess your fraud risks, strengthen internal controls and undertake other measures to prevent financial wrongdoing.

Many construction businesses reach a point in their growth when they decide to maintain inventories. They might keep on hand items such as building materials, supplies, personal protective equipment and tools. Maybe yours already does.

A construction company’s tax accounting method for inventory can significantly affect its tax bill, especially when costs are trending upward. Whether your business has an inventory now or is mulling the concept of creating one, let’s review some of the major concepts involved.

Many construction businesses reach a point in their growth when they decide to maintain inventories. They might keep on hand items such as building materials, supplies, personal protective equipment and tools. Maybe yours already does.

A construction company’s tax accounting method for inventory can significantly affect its tax bill, especially when costs are trending upward. Whether your business has an inventory now or is mulling the concept of creating one, let’s review some of the major concepts involved.

Tax Impact

Inventory items generally aren’t taxed until they’re sold. However, your inventory affects your taxes before then because of its role in determining your construction company’s taxable income. Specifically, your inventory is one of the components involved in calculating “cost of goods sold” (COGS), which for contractors includes direct costs associated with the performance and completion of projects.

COGS typically represents a substantial chunk of most construction companies’ tax-deductible expenses. Generally, the lower your COGS, the more income you’ll report to the IRS and, in turn, the more taxes you’ll pay. On the other hand, higher COGS usually means less taxable income and lower tax liability.

FIFO vs. LIFO

For all types of businesses, including construction companies, the two most common tax accounting methods for inventory are first-in, first-out (FIFO) and last-in, first-out (LIFO).

True to its name, FIFO assumes that your construction business uses its inventory in the order items are purchased. And this tends to be how most contractors handle their inventories: They use the oldest materials first to avoid obsolescence, among other reasons.

As a result, unused items are those most recently bought in your ending inventory, which is reported on your balance sheet as an asset. In an inflationary market, these newer unused items will be the most expensive. Conversely, inventory charged to COGS is typically cheaper. Thus, COGS for companies that use FIFO will be lower in most cases and, in turn, they’ll have more taxable income and higher tax liability.

Under LIFO, it’s assumed that you use your most recently bought materials first. This generally means your ending inventory includes older and less expensive items. In a market with rising prices, LIFO first charges the costs of newer items to COGS, boosting it and lowering taxable income. From this perspective, LIFO may also be beneficial if your construction company is moving up to a higher tax bracket.

However, if the cost of inventory items is dropping, a seemingly rare occurrence in recent years, LIFO is less beneficial because it charges those lower costs to COGS, potentially increasing taxable income.

Beyond Taxes

Although LIFO may have the edge regarding federal income taxes when the costs of inventory items are high, FIFO has several nontax advantages worth considering. For example, it’s generally easier to start using and to manage.

No formal election is needed to use FIFO; businesses simply report it as their tax accounting method for inventory on their first tax returns. Conversely, you must affirmatively elect to use LIFO on IRS Form 970, “Application to Use LIFO Inventory Method.” The election is irrevocable unless you obtain IRS authorization to use FIFO.

In an inflationary market, FIFO also usually leads to a stronger balance sheet because your ending inventory, as an asset, is based on the cost of the most recently purchased items. Lower COGS, which tends to occur under FIFO, also generally translates to a higher profit on your income statement.

Moreover, as mentioned, FIFO likely reflects the way a construction business actually uses its inventory. Therefore, it takes a more accurate snapshot of your inventory’s value and your overall financial position. LIFO often results in lower inventory value based on items you may no longer have on hand.

Critical Decision

Choosing a tax accounting method for inventory is a critical strategic decision. For instance, how it affects your construction company’s financial statements can, in turn, impact external financing from lenders or investors. Whether you’re just beginning to build an inventory or have one in place, we can help you make the right choice based on your circumstances and economic environment.

Construction Businesses

Running a construction business in Idaho comes with its share of expenses. Understanding which costs are tax-deductible can not only improve cash flow but also position your business for greater financial success. Forgetting to deduct important expenses could cause you to pay much more for your business unnecessarily. While tax laws vary at the federal and state levels, there are specific deductions construction businesses in Idaho should pay attention to. Here is a breakdown of common tax-deductible expenses for construction businesses.

Tax-Deductible Expenses for Construction Businesses

1. Cost of Goods Sold (COGS)

The Cost of Goods Sold is one of the largest expenses construction companies face. Materials, supplies, and direct labor costs required to build homes, commercial buildings, or other structures are deductible. If your business manages inventory in Idaho, tools and machinery used directly for construction projects can also be included under COGS.

2. Employee Wages and Contractor Payments

Labor is a major expense in the construction industry, and wages paid to employees are tax-deductible. Payments to independent contractors are also deductible, provided that accurate IRS 1099 forms are filed. In Idaho, don’t forget that state-mandated payroll tax contributions, such as Idaho income tax withholding, are factored into your deductions.

3. Vehicle Expenses

Vehicles used for business purposes, such as transporting materials or traveling to job sites, are deductible. Keep detailed records of mileage, fuel, and maintenance expenses to maximize this deduction. If you have a fleet of vehicles, consider whether the actual expense method or the standard mileage rate offers a greater deduction.

4. Equipment Purchases and Depreciation

Heavy machinery, tools, and other construction equipment often represent significant costs. While smaller purchases may qualify for immediate deductions under Section 179 of the IRS code, more expensive items are often depreciated over time. In Idaho, be sure to track these assets carefully for both federal and state tax filings.

5. Office Expenses

Even if much of your work is done at construction sites, expenses for a home office or leased office space are deductible if they are used exclusively for business purposes. Utilities, rent, office supplies, and software are all eligible.

6. Business Insurance

Various types of business insurance are deductible, including general liability insurance, workers’ compensation insurance, and tools or equipment insurance. In Idaho, additional regional policies, like those for environmental risks or wildfire damages, can also be written off.

7. Marketing and Advertising

Expenses for advertising your construction business,such as creating a website, producing promotional materials, or running online ads,are fully deductible. This includes locally targeted campaigns to attract customers in regions like Southeast Idaho.

8. Idaho-Specific State Taxes

While federal taxes often overshadow state-specific deductions, construction businesses in Idaho should pay attention to their unique state obligations. Deductions are available for state employment taxes, including unemployment contributions, and Idaho Business Personal Property Tax exemptions for qualifying machinery and tools.

9. Training and Licensing

In order to operate legally and efficiently in Idaho, construction companies will have to pay for licenses, certifications, or training programs. These costs, including certifications for electricians, plumbers, or general contractors, are deductible as a business expense.

10. Travel and Lodging

For out-of-town projects, construction companies often have travel costs, as well as lodging and meals for workers. While business travel is deductible, make sure you distinguish these from personal expenses. Idaho-based businesses working across state lines should account for any differences in tax regulations.

Maximize Your Deductions

Idaho construction businesses have unique opportunities to reduce their tax burdens by understanding which expenses qualify as deductible. From equipment costs to state taxes and marketing campaigns, every deduction helps your bottom line. Keeping detailed records and consulting with a tax professional familiar with Idaho’s tax codes will help your business remain compliant and maximize savings.

If you’re a construction business owner in Idaho and need expert advice, Cooper Norman is here to assist as we specialize specifically in the construction industry. Remember, the better you manage your expenses, the better equipped your business is for growth.

Need help streamlining your business operations or navigating local tax regulations? Contact us today!