With year-end just around the corner, construction firms are entering one of the busiest times of the year for financial reporting and tax planning. Preparing your books now will save you stress and help maximize your deductions come tax season. Let’s walk through five key steps every construction company should take in the next 90 days to close the year on a strong financial note.
Job costing is at the core of financial success in construction. As you prepare for year-end, review your project costs and compare them to your initial estimates. Doing so allows you to identify any unexpected variances, correct inaccurate costs, and ensure that your reported profits are accurate.
Action Step: Work with your team to gather job cost data, double-check vendor invoices, and ensure all project-related expenses are accounted for. Any discrepancies should be adjusted before year-end to reflect accurate financials.
Construction firms have access to a variety of deductible expenses, from materials to travel costs. Organizing these receipts and ensuring each expense is properly categorized can significantly reduce your tax bill.
Action Step: Review your accounts and confirm that all receipts are entered and properly categorized in your bookkeeping software. Ensure expenses are labeled correctly as they relate to tools, equipment, travel, and subcontractor services. For large purchases, consider whether taking a Section 179 deduction or bonus depreciation is advantageous this year.
Cash flow is vital to construction businesses, and there’s no better time to clean up your accounts receivable. Invoices that remain unpaid can affect your financial reports and impact year-end cash flow projections. Chasing down outstanding payments now can boost your bottom line and improve your financial position heading into tax season.
Action Step: Generate a report of all outstanding invoices and reach out to clients with reminders. If necessary, offer flexible payment options to encourage quick settlement. Close out as many invoices as possible to reflect a healthy cash position in your year-end financials.
Construction firms often have significant investments in machinery and equipment, and depreciation can have a considerable impact on your tax liability. Assessing your assets and their depreciation schedules can ensure you’re taking the full tax benefit for any eligible items. Now is also the time to consider year-end purchases, as certain expenses may be eligible for immediate deductions.
Action Step: Review your depreciation schedule and consult with your accountant to determine whether taking additional depreciation is beneficial. If you’ve made equipment purchases this year, make sure they’re recorded correctly in your asset accounts.
The construction industry faces unique tax considerations, including cash basis accounting, cost segregation, and long-term contract rules. A proactive meeting with your accountant allows you to explore these strategies and adjust for any last-minute tax planning opportunities.
Action Step: Schedule a meeting with your accountant to discuss your company’s overall financial health, assess potential deductions, and forecast tax obligations. Your accountant can help you leverage industry-specific tax strategies and ensure compliance with regulations that impact construction businesses, like 263A and percentage-of-completion rules.
A smooth year-end close can save you stress, cut down on tax obligations, and set you up for financial success in the year to come. By following these steps, construction firms can ensure they’re organized, maximizing deductions, and financially prepared for tax season. If you need help with any of these steps, our team at Monthend is here to provide specialized accounting support for construction firms. Let’s make this year-end your best yet!
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