Tax Tips for Contractors
Contractors are coming off what has to be one of the most dramatic decades in history. Bookended by 9/11 and a severe recession, with boom years in the middle, the past 10 years have challenged the resources of even the most financially solid and best-run companies. Recently enacted stimulus bills offer new tax-saving opportunities, while current budget deficits and the change of administration portend tax increases. Grant Thornton LLP, Chicago, says that contractors need to do what they can to maximize cash by effectively managing their tax burdens and protecting themselves against tax increases and assessments. With 2010 ushering in a very uncertain tax climate, the global audit, tax and advisory organization says that construction contractors should keep in mind the following tax tips:
Make the most of your net operating loss deduction. Recent tax legislation opens up opportunities for taxpayers of all sizes to choose an extended carryback period for net operating losses. This provision allows contractors who have NOLs to choose a five-, four- or three-year carryback period (increased from the normal two-year rule) for NOLs incurred in a tax year beginning or ending in 2008 or 2009. Keep in mind, however, that only a single year can qualify for this enhanced carryback period. Taxpayers with NOLs in two or three qualifying years need additional analysis to maximize their cash refunds.
Take a hard look at bonus depreciation deductions. As an incentive for investment in equipment, taxpayers are allowed to deduct half of the cost of 2009 qualifying property in the first year of use, and then depreciate the remaining half of the asset over its normal useful life. For five-year equipment (the most common tax life for construction equipment), this allows a deduction of 60 percent of the asset’s cost in the first year of its life. For contractors in a tax-loss position, this deduction increases NOL carryback opportunities. However, pass-through entities such as S corporations or LLCs should be aware that significant individual income tax increases are possible, which may make depreciation deductions worth more in the future. Careful planning is required to make sure this deduction is right for you.
Consider future capital gains and dividend tax rate increases. Under current law, capital gains and qualified dividends are taxed at a favorable 15 percent federal income tax rate. This preferential treatment is scheduled to expire at the end this year, and individuals (absent a law change) will face higher taxes on these items in 2011. Taxpayers with significant capital gains transactions should work with tax advisers to analyze whether accelerating capital gains and dividends into 2010 is a prudent tax move.
Take full advantage of capital asset expensing deductions. Rules originally intended for small businesses were expanded significantly to allow contractors to expense up to $250,000 of 2009 fixed asset costs, provided less than $800,000 of assets were placed in service throughout the year. Unlike bonus depreciation, this applies to new or used assets. However, this deduction cannot be taken if a contractor is already in a tax-loss position.
Consider not deferring income. The traditional wisdom of deferring income for tax purposes deserves another look. With many government entities looking for increased tax revenues, new tax policies and rate increases are very possible. At the current time, individual taxpayers are a target. With tax increases scheduled for 2011, taxpayers would be well-advised to consider whether deferring taxable income is still the most cash-efficient option.
“To learn how these tax tips may apply to your contracting business, please contact your tax advisor,” said Todd Taggart, tax partner and practice leader of Grant Thornton LLP’s Construction practice.
Industry-Wide Initiative Creates First-Ever AWP Equipment Document on General Training and Model-Specific Familiarization
The American Rental Association, the Association of Equipment Manufacturers, the Associated Equipment Distributors, the International Powered Access Federation and the Scaffold Industry Association have joined forces for a first-of-its-kind industry initiative to develop an educational document to clarify what is required for general training and model-specific familiarization of aerial work platform equipment.
The result of this joint initiative is the Statement of Best Practices of General Training and Familiarization for Aerial Work Platform Equipment, the first such document that is applicable for use by everyone in the industry. The content addresses the following:
• Educating the industry on the industry-recognized-and-supported standards, including the American National Standards Institute/Scaffold Industry Association (ANSI/SIA) A92 Standards and the Occupational Safety & Health Administration regulations.
• Presenting best practices and minimum general training guidelines for AWP operators.
• Emphasizing the differences between general training and familiarization to all parties responsible.
• Clarifying minimum qualifications of the trainer.
The purpose of this joint initiative and document is the increased safe use of AWP equipment and expanded risk management knowledge for use of these machines throughout the country.
AISI Publishes Supplement No. 1 to AISI S100, the North American Specification
The American Iron and Steel Institute, Washington, D.C., announced Jan. 27 that Supplement No. 1 to AISI S100, the North American Specification for the Design of Cold-Formed Steel Structural Members, 2007 Edition has been published and is available free of charge on AISI’s Web site at www.steel.org.
The supplement adds the provision for determining the safety and resistance factor for partition walls, and updates the reference to Supplement No. 1 of AISI S213, the North American Cold-Formed Steel Framing Standard-Lateral. The North American Specification harmonizes cold-formed steel design technology among the United States, Canada and Mexico, allowing faster introduction of new technologies and opening up the marketplace for a variety of derivative products such as design aids and educational materials.
The supplement was developed by a joint effort of AISI’s Committee on Specifications, the Canadian Standards Association Technical Committee on Cold-Formed Steel Structural Members, and Mexico’s Camara Nacional de la Industria del Hierro y del Acero.
California Approves Requirement for Fire Sprinklers in All New Homes Beginning in 2011
The National Fire Sprinkler Association, Patterson, N.Y., announces the state of California has adopted building code changes that will require all new one- and two-family homes and townhouses built in the state starting Jan. 1, 2011, to be equipped with fire sprinkler systems.
In January the California State Building Standards Commission voted unanimously by a margin of 10-0 in favor of adopting the 2010 California Residential Code, which includes the 2009 International Residential Code as established by the International Code Council in September 2008. The residential sprinkler requirement was voted into the 2009 IRC by building code officials from all over the United States, gaining more than two-thirds of the vote.
California now joins Pennsylvania and New Hampshire as the only states in the nation to adopt the 2009 IRC Code at the statewide level.
Nonresidential Construction Spending Up in December, but Down for the Year
Private nonresidential construction spending rose 0.2 percent in December, but was down 17.7 percent year-over-year, according to the Feb. 1 report produced by the U.S. Census Bureau. Total nonresidential construction spending fell 0.5 percent for the month and 9.8 percent for the year, reaching $633.8 billion on a seasonally adjusted annual basis.
Eight of the 16 nonresidential construction subsectors experienced spending increases in December compared to November, including public safety, up 3.5 percent; communication, up 3.4 percent; and power, up 3.3 percent. Those subsectors that experienced the largest gains year-over-year include power, up 13.5 percent; transportation, up 8 percent; and conservation and development-related construction, up 3.9 percent. Office construction spending rose 1.6 percent and commercial construction spending rose 0.8 percent for the month despite their dismal performance during the past year and the prevalence of high vacancy rates.
Of the eight subsectors that experienced decreases in construction spending in December, lodging’s decline was the most pronounced at 7.7 percent, followed by sewage and waste disposal (down 2.3 percent) and manufacturing-related construction (down 4.9 percent). Year-over-year, the sharpest nonresidential construction spending declines in terms of percent change were in lodging, down 46.1 percent; commercial, down 35 percent; and office construction, down 26.2 percent. After holding steady in November 2009, manufacturing-related construction is now down 10.5 percent on a year-over-year basis.
Public nonresidential construction fell 0.3 percent in December, but was up 1 percent on a year-over-year basis. Residential construction was down 2.7 percent for the month and 10.3 percent year-over-year. Total construction fell 1.2 percent for the month and 9.9 percent since December 2008.
“[This] report was not particularly encouraging,” said ABC Chief Economist Anirban Basu. “December marked a full 10 months after the American Recovery and Reinvestment Act of 2009 was passed, and recovery in private nonresidential construction remains virtually nonexistent. Although it could be argued that without the stimulus package things would be even worse; for the year, nonresidential construction was down 18 percent.”
“Somewhat frustrating is the fact that manufacturing-related construction is now down significantly on a year-over-year basis,” Basu said. “The hope had been that as credit markets stabilized, investment in refinery capacity was renewed, American exports rebounded in conjunction with the balance of the global economy, and inventories were rebuilt, manufacturing would help stabilize the nonresidential construction sector and the broader economy. However, to date, there is little evidence of an impending rebound in manufacturing-related construction, which suggests that the overall level of confidence in the U.S. economy remains modest despite the recently released fourth quarter gross domestic product report.
“It remains to be seen whether the monthly increases in nonresidential construction related to office and commercial projects will continue or if it will turn out to be simply a one-month phenomenon,” said Basu.
Builder Confidence Declines in January
Builder confidence in the market for newly built, single-family homes declined one point to 15 in January on continuing concerns about the poor job market and large number of foreclosed homes for sale, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index, released Jan. 19.
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.
The January HMI fell one point to 15, its lowest point since June of 2009. Two of its three component indexes registered one-point declines, with the index gauging current sales conditions and the index gauging traffic of prospective buyers falling to 15 and 12, respectively. The index gauging sales expectations in the next six months held even, at 26.
The HMI edged down by a single point in three regions, with the Northeast falling to 22, the Midwest down to 11 and the South declining to 16. The HMI fell three points in the West, to 16.
People & Companies in the News
Mark Starnes, who served as vice president of operations at Perry Manufacturing Inc. for more than 30 years, has started Nu-Wave Manufacturing, LLC based in Indiana. Contractors can continue to buy the quality and interchangeable scaffolding products for which the industry leader was known. The Nu-Wave team consists of many former Perry Manufacturing staff members: Larry Eberle (national sales manager), Tonia Fillmore (office administrator), Joe Dean (plant superintendent) and several key production workers.
Sto Corp., Atlanta, has added Melissa Cooke, CPA as its new controller. Cooke joins Sto from Deloitte where she was most recently a financial controller.
Products in the News
The Hilti X-CW ceiling wire assembly has received an ICC Evaluation Service Report ESR-2892. The ICC-ES ESR-2892 provides design professionals and building officials with an independent evaluation of this Hilti fastening system.
Johns Manville (JM), a Berkshire Hathaway company headquartered in Denver, has announced that products from its line of Formaldehyde-freeTM fiber glass building insulation have qualified for SCS Indoor Advantage™ Gold + Formaldehyde Free certification from Scientific Certification Systems, an independent certifier of environmental and sustainability claims.
New on the ’Net
ALL Aerials, a member of the ALL Erection & Crane Rental Corp. Family of Companies, announces the launch of its completely revamped Web site at www.allaerials.com.
The new site details both new and used aerial equipment for sale, new and used parts, 24/7 service and a jobsite photo gallery. Easy to navigate and deep with features, the site includes a convenient used equipment inventory that is searchable by type, make, model and year. Users can submit a fast quote request for a purchase or rental and also submit a credit application online.
Topcon Tierra’s redeveloped Web site is up and operating, according to Mark Bittner, senior vice president and general manager, Topcon Telematics Business Unit.
The site offers new features such as a dealer locator and an access link that takes visitors directly to the Tierra log-in page for registered users.
The new site also offers the ability to provide information in multiple languages; the first to be added will be Spanish and Italian.
The site can be accessed at www.topcontierra.com.
