Running a construction business comes with its fair share of challenges—especially when it comes to managing taxes and protecting your assets. Bob, a determined business owner, knew he needed expert advice to scale his business without falling into costly tax traps. Together with his life partner, Sally, they reached out to me, Daveed Tuck, an Ex-IRS auditor and Portland tax consultant. Through our work, we uncovered 12 strategies that not only saved them thousands in taxes but also set them up for long-term financial success.
1. Choosing the Right Business Structure: Less Risk, More Flexibility
When Bob started, he was operating as a sole proprietorship. While this was easy to set up, it exposed him to unnecessary tax risk. We restructured his business into an LLC taxed as an S Corporation, allowing for better protection of his personal assets and giving him flexibility for future growth.
Pro tip: If you’re in real estate, understanding how entity structures can impact taxes is crucial. I discussed this in my blog post on the 10-T election, a critical tax strategy for real estate investors.
2. Separating Business and Personal Finances
Commingling business and personal funds is a common issue among business owners, but it can lead to tax headaches. By setting up separate accounts, Bob and Sally were able to protect their personal assets and avoid unnecessary scrutiny during an audit.
3. Gift Leaseback for Depreciated Equipment
We took advantage of the gift leaseback strategy to transfer ownership of fully depreciated equipment, like trucks and machinery, to Sally’s management company, which then leased them back to Bob’s business. This unlocked new tax savings and employed their kids in the process.
4. Tracking Every Deductible Expense
By setting up a system to track every deductible expense, Bob reduced his taxable income and improved cash flow. For long-term tax planning, it’s crucial to track deductions meticulously to avoid surprises.
Need more on avoiding tax surprises? Check out how to avoid expensive surprise tax bills in another post I wrote.
5. Accurate Financial Planning for Long-Term Projects
Managing multi-year projects can complicate tax planning. By using the Completed Contract Method, Bob deferred tax payments until his projects were complete, allowing for more predictable cash flow management.
6. Cash vs Accrual Accounting for Job Costing Accuracy
Accrual accounting gave Bob more accurate reporting for job costs, which helped him see which projects were profitable and which were costing him money.
7. Simplified System with Internal Controls
I introduced a simplified system with strong internal controls to ensure that Bob captured every deduction and minimized risks.
8. Maximizing Tax Credits
Taking advantage of credits like the Work Opportunity Tax Credit and the Energy-Efficient Commercial Buildings Deduction saved Bob and Sally thousands on their tax bill.
9. Avoiding Payroll Tax Penalties
Automating payroll with a service like Gusto helped Bob avoid costly penalties and reduced the stress of managing payroll taxes.
10. Establishing a Board of Directors
Establishing a board of directors provided Bob with formalities that not only gave his business structure but also helped during audits and business exits.
11. Planning for Multiple Exits
We discussed multiple exits rather than a one-time sale. This approach allowed Bob to maximize the value of his business while minimizing the tax burden.
12. Always Have a Side Hustle—Even in Retirement
Bob and Sally started side hustles to take advantage of additional tax deductions and ensure long-term financial security.
Bob and Sally’s story is one of success thanks to these tax-saving strategies, which not only helped them grow their construction business but also ensured they were set for long-term financial security.
If you’re ready to maximize your tax savings and protect your business, schedule a Right-Fit Call with Daveed Tuck at Anvil Tax. Let’s implement these strategies to secure your future.