Tax Tips for Construction, Architecture, and Engineering Firms

When it comes to owning a construction, architecture, or engineering firm many of the tax tips are the same as a regular business, but there are some special points to be made about each tax tip as well as some tax tips that are unique to these three industries.

One tax tip for small businesses that can be especially important for construction, architecture, and engineering firms is to make sure to fully utilize the auto deduction. Because of the need to visit job sites these industries may have a higher than normal auto expense. You can choose to use either the actual expense method (recommended if you have a 100% business use vehicle) or the standard mileage deduction. If you choose to use the actual expense method it is important to keep track of gas, repairs, oil changes, loan interest, tires, and licenses. Once you choose the actual expense method it is important to remember you cannot switch back to the standard mileage method. For the standard mileage deduction you should keep track of miles driven to see clients, visit job sites, trips to the post office, bank, supply store, etc. Business miles do not include trips from your home to your office.

Another tax tip that can save you money is the home office deduction. For small business owners in one of these three fields it is often times easy to have your home office be your principal place of business since most meetings take place on a job site or at a customer’s office. In order to deduct a home office it does not necessarily need to be your principal place of business, but could also be somewhere you meet clients, or even where you store inventory. When you have a dedicated home office you can write off a percentage of your mortgage interest, property taxes, insurance, rent, utilities, etc. Also, if you use your garage to store inventory or a 100% business use vehicle then you may be able to deduct that space as well.

Another great tax tip that is specific to construction, architecture, and engineering firms is the Domestic Production Activities Deduction. This deduction is set to expire at the end of 2010, but if you did not claim it in prior years you are still able to go back and amend returns for past years. The DPAD allows architects, engineers, and contractors who participate in production of buildings or other items in the US to take a deduction of 3, 6, or 9% (depending on the year) for their participation in domestic production. The amount of the deduction allowable is limited to 50% of W-2 wages paid by the taxpayer and wages paid to owners are included in the calculation. This can be a big deduction for firms whose services qualify as domestic production. If you don’t have any employees, perhaps you should become an employee of your business so you can take this deduction.

When you have a small business it is always a good idea to consult with a tax adviser to make sure you are getting all the deductions possible for your business. There are more tax tips discussed in my webcast called “Tax Tips for Construction, Architecture, and Engineering Firms” and you can register at http://smallbusinesswebcast.com to attend.