Although some may argue that paying more tax than required might be considered patriotic, it’s important to recognize that strategically minimizing tax liability (within the legal framework, of course), is a common and prudent practice in the United States. The U.S. Tax Code, also known as the Internal Revenue Code (IRC), contains several provisions which can help contractors reduce their tax burden.

Reducing Overall Tax Liability 

At this time every year we encounter contractors who are upset about their tax liability. They complain because after years of struggling financially, they experience a profitable year, just to be told to hand over a substantial amount of their profits to the government taxing agencies. What some owners don’t know, and often find out after the fact, is that with some strategic tax planning they can reduce their overall tax liability. Tax planning should be part of a contractor’s financial plan. Identifying ways to reduce tax liability and use those savings in a way that benefits the contractor should be sought.

It’s helpful to consult with your CPA, or other professional tax preparer, to customize the various strategies for your specific situation. With so many tax issues that can affect your business, it’s essential to ensure that every potential deduction is considered, even if you need to delve further into the details with your tax professional before making a decision. When implementing a long-term tax plan, it is crucial to keep up with the evolving tax laws, which may necessitate a course correction to your existing strategy.

There are no cookie-cutter solutions, as each business faces unique challenges, but here are five popular tax planning strategies that we have found particularly beneficial to contractors. 

1. Education Expenses (Yes, They’re Deductible!)

Generally, education expenses are considered valid when they include classes to improve specific skill sets required for a particular position, or to learn about updated methods or processes, especially if needed for compliance. Additional deductions may be available for the type of training that is required to obtain licenses which are applicable to your industry.

One example is the LEED certification, which gives contractors and their teams a competitive edge when bidding on contracts in an environment with increased awareness and implementation of green building standards. This is a double win for contractors.