By Ben Kinsey, CPA
Calling all small contractors!
|Image courtesy of flickr|
The new rules for long term contracts started after December 31, 2017, can now be accounted for using the cash accrual basis instead of percentage of completion as long as your business reports under $25 million in gross receipts. The only downside is you will have to keep using the percentage of completion method for any long-term contracts started prior to January 1, 2018 that are still in effect. This means you will be forced to ease your way into the cash accrual method of accounting for 2018. That’s the bad news. The good news is come 2019, all your accounting headaches concerning percentage of completion reporting will go away.
What this means over the long haul is this new ruling is going to ease some of the complications for small contractors when it comes to filing tax returns. That’s not to say your bonding company isn’t going to require you to keep some sort of percentage of completion records to keep them happy. That’s a separate issue. In addition, some of the capitalization rules have been eased, including cost capitalization, and inventory.
Changing Retail Rules
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1. You have to make a filing.
2. You have to make an election.
When performed properly, not only will this be a good move from a taxation point of view, it could also be a good cash-flow move for you and your business. If you had a great year this year, you can expense your inventory in the future. This is a great way for small retailers to help level the playing field a bit when it comes to competing with the big boys. Especially now that Amazon and Walmart have entered the online marketing realm with local pickup, this could be a godsend for retailers trying to defend their niche and pay down some debts while saving on taxes at the same time.
Just as with contractors, if you want to take advantage of the new tax rules, you will be required to change to a cash accrual method of accounting if the production, purchase or sale of merchandise is a profit-producing factor for your business. Additionally, the 2017 Tax Act allows retailers to expense improvements to their business including roofs, HVAC, security and alarm systems, provided the business is not run from your home. The Act also allows retailers to expense 100% for select business machinery, as opposed to the 50% previously allowed by law.
The downside is that these deductions will only be in effect as currently stated until December 31, 2022. After that, a planned phase-out for property purchased in 2023 onward, as well as other planned reductions on select deductions beginning in 2026 mean the time is sooner rather than later to take advantage of these IRS benefits while they last.
Ben Kinsey, CPA of Small Business Group works with owners of closely held corporations in the Northeast Florida region. If you work in the North Florida area we offer a FREE initial Consultation at our office, please contact Small Business Group if you would like to know more about strategies for your business.