For Construction: Coordinate Your Timing & Taxes (Part 1 of 2)
So much about a general contractor’s success is in the timing: from waiting for the design work to be completed, arranging financing, obtaining bonding approvals, and surviving permitting delays, to dealing with indecisive owners, fickle inspectors, unpredictable sub-contractors, and material deliveries, etc.Then you must consider the unpredictable challenges of the weather and personal problems of your team. Finally, when you get it all together, your CPA tells you that because of your great year, Uncle Sam wants 35% of your success, plus whatever your state thinks it deserves. Can’t a person ever get ahead?This week’s blog is part one of a two-part series to help contractors combine timing with taxes.While the price of success does include income taxes, some timing strategies can limit the bite. With all the rhetoric about solving the U.S. debt problems with an increase in the top income tax bracket, focusing on staying out of that neighborhood sounds like a profitable endeavor. The obvious approach is to limit your income, but that doesn’t build net worth. Fundamentally, two tactics can be employed for keeping your income in a lower tax bracket:1) Divert income to sources with lower tax brackets (including investing in deferred income vehicles such as retirement accounts, annuities, and long term capital gain or tax free investments.); and2) Look at a multiyear strategy to keep taxable income level from year to year, thus avoiding spikes that push you into a high tax bracket one year, while the next year has much lower taxable income. (Consider a similar strategy and avoid the sneaky Alternative Minimum Tax by leveling the tax preferences from year to year.)So now that we’ve generally defined the rules of the game, you may be wondering how you can improve your winning percentage. Next week’s blog will give you pointers to do that. Until then, if you have any questions, feel free to contact your friends at Patrick & Robinson CPAs, 904-396-5400 or Office@CPAsite.com.
