Don’t Leave Money on the Table:
Basic tax prep tips—like organizing receipts and meeting the deadline—only get you so far. For small to medium-sized business owners and high-net-worth individuals, effective tax preparation is an aggressive, proactive strategy built on deep knowledge of the tax code and industry-specific regulations. The goal isn’t just compliance; it’s optimization.
The TYS team, with a specialized focus on the complexities of the construction industry and small businesses and a cross-state presence in Rochester, NY, and Walnut Creek, CA, offers advanced tax prep insights that translate directly into significant savings and wealth preservation.
Tip 1: Master the Art of Depreciation and Expensing
Every year, millions of dollars in potential deductions are missed because businesses fail to utilize accelerated expensing rules correctly.
Retroactive Section 179 and Bonus Depreciation:
Following the “One Big Beautiful Bill Act,” businesses should work with their CPA to retroactively review all 2024 capital expenditures (equipment, software, business vehicles) to maximize the newly increased Section 179 deduction limit ($1.5 million for 2024). Furthermore, for 2025 and beyond, the permanent return to 100% Bonus Depreciation means strategic asset purchases should be planned early in the year to accelerate deductions.
The Power of Cost Segregation:
For owners of commercial real estate (especially those using a construction firm’s expertise), a Cost Segregation Study is a game-changer. This advanced technique separates building components into categories with shorter depreciable lives (5, 7, or 15 years) instead of the standard 39 years. This dramatically accelerates depreciation deductions, creating massive immediate tax savings and increasing cash flow. This is a must-use tip for high-net-worth real estate investors.
Tip 2: Leverage the Home Office Deduction (The Right Way)
The Home Office Deduction is often misused, but when correctly applied for business owners and high-net-worth individuals who manage their operations from home, it’s a valuable write-off.
The Exclusive Use Rule:
The space must be used exclusively and regularly as the principal place of business, or as a place to meet clients.The Simplified Option:
While less accurate for maximal deductions, the IRS offers a simplified option of deducting $5 per square foot (up to 300 square feet) which can save time on record-keeping.For Construction:
A construction owner’s home office used exclusively for bidding, job costing, and administrative duties qualifies, allowing them to deduct a proportionate share of mortgage interest, property taxes, utilities, and insurance.
Tip 3: Optimize Retirement Savings to Reduce AGI
High-net-worth individuals should fully leverage the tax-deferral power of retirement savings to lower their Adjusted Gross Income (AGI). Lowering AGI can unlock eligibility for other credits and deductions subject to phase-outs.
Max-Out Qualified Plans:
Fully fund personal 401(k), IRA, and/or HSA accounts.Explore Advanced Business Plans:
Small business owners, particularly S-Corp owners, should discuss implementingDefined Benefit Pension Plans
or Solo 401(k)s with their CPA. These plans often allow for significantly higher contribution limits than a standard SEP-IRA, creating much larger tax deductions.
Tip 4: Construction Accounting’s Secret Weapon: The WIP Schedule
This is TYS’s area of specialized expertise. For any construction or contracting business, the accuracy of your Work-in-Progress (WIP) Schedule determines your tax liability.
Accurate Revenue Recognition:
The WIP schedule ensures that income is recognized in proportion to the work completed, not just when cash is received. Incorrect WIP management leads to:
Over-billing and Under-recognizing:
Paying taxes on money you haven’t fully earned.Under-billing and Over-recognizing:
Deferring taxes today, only to face a massive, unforeseen tax bill later.
Bonding and Lending:
The WIP schedule is the number one financial report required by bonding companies and lenders. A poorly prepared or inaccurate WIP will cripple a construction firm’s ability to secure financing or win large public contracts.
Final Tip: Proactive, Specialized Planning Saves Money
The best tax prep tip is to stop viewing your CPA as a year-end filer. Start viewing them as an essential, year-round strategic partner. The most significant tax savings happen in September and December, not in April. A TYS specialist can analyze your financials and implement tax moves before the year ends. Securing deductions and adjusting estimated payments to prevent costly underpayment penalties in New York and California.
Ready to move beyond basic tax filing? It’s time to implement advanced, specialized tax prep tips that reflect your high-net-worth status and business complexity. Contact TYS in Rochester or Walnut Creek today.
Q&A: Getting Your Taxes Ready
Q1: If my CPA files an extension, does that extend the time to pay?
No. Filing an extension only extends the time to file your tax return (usually until October 15). Any tax liability must still be estimated and paid by the original April deadline to avoid penalties and interest on the underpayment.
Q2: Should I try to zero out my company bank accounts before year-end?
No, this is highly discouraged. Focusing on legitimate deductible expenses is better. Artificially “zeroing out” accounts by pre-paying expenses that aren’t necessary for the current year can lead to cash flow issues and potential IRS scrutiny if the timing is not justified.
Q3: What tax document is most critical for a construction company?
The Work-in-Progress (WIP) Schedule. This report, which tracks the percentage of job completion and the corresponding revenue recognition, is essential for accurate financial reporting and is a primary focus for lenders and bonding companies.
Q4: How far back should I keep tax documentation?
The IRS generally has a statute of limitations of three years from the date you filed your return. However, it is prudent for high-net-worth and business owners to keep tax returns and supporting documentation (especially related to asset basis) indefinitely or for at least seven years, in case of any issues related to capital gains or fraud.
Q1: What’s the biggest benefit of an S-Corp over an LLC for tax purposes?
The biggest benefit is the potential for self-employment tax savings. LLC profits are typically subject to self-employment tax (15.3%), whereas S-Corp owners can take a “distribution” (non-payroll profit) that is generally exempt from this tax, provided they pay themselves a “reasonable salary.”
Q2: Does an LLC protect my personal assets from tax debt?
No. An LLC shields your personal assets from the business’s liabilities (e.g., a lawsuit or a debt), but the IRS typically holds business owners personally responsible for payroll tax obligations that are deliberately not paid. Proper structure and compliance are key.
Q3: What makes a CPA in NY different from one in another state?
A CPA in NY is deeply knowledgeable about complex state-level tax issues, such as the NY State Corporation Franchise Tax, the local taxes in NYC, and specific state regulations related to professional licensing and nexus—all of which significantly impact the financial efficacy of a business structure.
Q4: As a construction company, why is my structure decision so high-stakes?
Due to the inherent high liability risk and the nature of large, fluctuating project cash flow, a flawed structure can expose an owner’s personal wealth to business risks and lead to inaccurate job costing, making it impossible to correctly bid on new, profitable work.
Q1: Can I use the Section 179 deduction for a used business vehicle?
Yes! Unlike Bonus Depreciation (which had complex rules on used property before the OBBB), Section 179 applies to used property that is new to your business. However, there are separate limitations for certain business vehicles.
Q2: Does taking the home office deduction increase my chance of an audit?
The home office deduction was historically a major audit trigger, but not so much today. The key is to have impeccable records and ensure the space meets the exclusive use rule. Using the simplified option also reduces audit risk by removing the need to track actual expenses.
Q3: What should my construction company do now to lower its tax bill?
Conduct a preliminary WIP Review. Work with your specialized CPA to ensure your revenue recognition is aligned with project completion, then look for strategic year-end purchases that qualify for the increased Section 179 deduction to lower your taxable income.
Q4: What is the most beneficial retirement plan for a high-earning business owner?
Often, a Defined Benefit Pension Plan or a Solo 401(k). These plans can allow for significantly higher pre-tax contributions—sometimes reaching six figures—compared to a SEP-IRA, providing the largest possible AGI reduction for high-net-worth individuals.
Contact TYS today at our Rochester, NY or Walnut Creek, CA offices to secure your business against fraud and optimize your tax strategy.