End-of-Year Tax Moves Every Construction Company Should Make (Before December 31)
- Cost Construction Accounting
- 2 days ago
- 6 min read
The clock is ticking, and December 31st is quickly approaching. This isn’t just any end-of-year deadline, it’s the hard cutoff for making crucial tax moves that could save your construction company thousands of dollars.
This year, the stakes are even higher. Recent changes to tax laws have dramatically altered the landscape of equipment depreciation, creating an unprecedented opportunity for contractors to maximize their savings. The adjustments to tax codes mean that contractors now have the most powerful tax-saving tools at their disposal in years.
Whether you’re a construction business owner, a general contractor, or a subcontractor, the time to act is now. Here's what you need to do before the year ends to take full advantage of these new tax laws and set your business up for financial success in the coming year.
Buy That Equipment You've Been Eyeing (This Year Is Different)
That excavator you've been considering? That new work truck in your saved listings? December is the time to pull the trigger and here's why this year is unlike any other.
Recent tax legislation doubled Section 179 limits and restored 100% bonus depreciation permanently. This creates an unprecedented opportunity for construction companies to accelerate equipment deductions.
Section 179: Your $2.5 Million Deduction Window
Section 179 now allows you to deduct up to $2.5 million in equipment purchases double what it was previously. But the equipment must be purchased AND placed into service before midnight on December 31st.
The phase-out: Once your total equipment purchases exceed $4 million, this deduction begins to phase out dollar-for-dollar, completely phasing out at $6.5 million in total purchases.
What qualifies:
Construction equipment (excavators, loaders, dozers)
Work trucks and heavy-duty vehicles
Trailers and specialized equipment
Office furniture, computers, and software
The catch: You can't just buy it you must have it delivered and ready for use by year-end.
Bonus Depreciation: The Game-Changing 100% Write-Off
Here's the massive news: Bonus depreciation is now 100% permanently for qualifying property acquired after mid-January this year.
That means if you buy a $200,000 excavator in December, you can potentially write off 100% of it this year using the combination of Section 179 and bonus depreciation.
Critical timing note: Property acquired earlier in the year may still be subject to old bonus rates. Property acquired more recently gets the full 100% benefit.
Why Both Matter: The Multiplier Effect
Here's what many contractors miss: you can use both Section 179 AND bonus depreciation on the same equipment purchase to maximize your deduction.
The strategy:
First, apply Section 179 to immediately expense up to $2.5 million
Then, apply 100% bonus depreciation to any remaining equipment cost
Result: Potentially 100% first-year deduction on substantial equipment purchases
Example: Purchase $4 million in equipment in December
Section 179 deduction: $2,500,000
Remaining basis: $1,500,000
Bonus depreciation (100% of $1,500,000): $1,500,000
Total first-year deduction: $4,000,000
Tax savings at 35% bracket: $1,400,000
This is why December 31st matters so much you're not just saving on one year of taxes, you're taking advantage of the most generous equipment expensing rules in modern history.
Real Example: The Cost of Waiting
Mike runs a mid-sized excavation company. He's planning to buy $500,000 in equipment new skid steers and a mini excavator.
Buy in December:
Section 179 deduction: $500,000 (well under the $2.5M limit)
Tax savings (35% bracket): $175,000
Net equipment cost after tax benefit: $325,000
Wait until January:
Section 179: Still available, but loses current year tax benefit
Must wait an entire year to realize tax savings
Potential changes in tax law by then
If you're buying anyway, December beats waiting.
Maximize Retirement Contributions (Double Tax Benefit)
Construction business owners often overlook retirement contributions as a powerful tax strategy.
Retirement contributions reduce your business's taxable income while building your future wealth. Depending on your plan type (Solo 401(k), SEP IRA, SIMPLE IRA), you could contribute substantial amounts that directly reduce your tax liability.
If you're a construction business owner with strong net income, maximizing retirement contributions can create significant tax savings while securing your financial future.
Action item: Contact your payroll provider before December 31st to make current year contributions. Some plans allow contributions up to your tax filing deadline (including extensions), but employee deferrals must be made by year-end.
Take Advantage of the QBI Deduction
The Qualified Business Income deduction allows eligible construction company owners to deduct up to 20% of their qualified business income.
Most construction companies qualify since they're not service businesses. This deduction alone can create five-figure tax savings for profitable contractors.
Important: Recent legislation made the QBI deduction permanent, providing certainty for long-term tax planning.
Make Strategic Expense Prepayments
You can prepay certain expenses in December and deduct them on your current year return.
Expenses You Can Prepay:
Insurance premiums (liability, workers' comp, equipment)
Rent for equipment or office space
Supplies and materials you'll need next quarter
Software subscriptions and trade association dues
Annual equipment maintenance contracts
The rule: Only prepay expenses that provide benefits for one year or less.
Cash flow consideration: Only prepay if you have the cash flow. Don't create a January crunch just to save on taxes.
Review Your WIP Schedule (The Income Timing Strategy)
Under IRS rules, projects are considered complete at 95% of construction costs. This matters because completion triggers income recognition but the timing of that recognition depends heavily on your accounting method.
Understanding Your Accounting Method
Construction companies typically use one of two long-term contract accounting methods:
Percentage-of-Completion Method (PCM):
Recognizes revenue and expenses as work progresses
Required for most contractors with average annual gross receipts over $27 million
Provides more consistent income recognition throughout the project
Completed Contract Method (CCM):
Defers all revenue and costs until project is substantially complete (95%)
Available for smaller contractors and certain home construction projects
Creates opportunities for strategic income timing
Why this matters for year-end planning: If you're using the Completed Contract Method, pushing a project from 94% to 95% complete before December 31st triggers income recognition this year. Conversely, keeping it at 94% until January defers that income to next year.
Strategic Moves Based on Your Income:
High-income year?
Consider delaying project completion until January to defer income
Especially valuable if you expect lower income next year
Low-income year?
Push to complete projects now to recognize income this year
Useful if you're under QBI deduction thresholds or want to maximize current-year deductions
Talk to your CPA about your WIP situation and which accounting method you're using. This single conversation could shift significant income between tax years.
Don't Forget Tax Credits
Tax credits reduce your tax bill dollar-for-dollar, they're even more valuable than deductions.
R&D Tax Credits for Construction
Many contractors don't realize that innovation in construction methods, developing new building techniques, or solving complex engineering problems can qualify for R&D credits. This isn't just for tech companies construction innovation counts.
Energy-Efficient Credits
For homebuilders or commercial contractors, substantial credits are available for energy-efficient construction projects. These credits have specific requirements work with a tax advisor who understands construction to ensure proper documentation and qualification.
Review Estimated Tax Payments (Avoid Penalties)
December is your last chance to make estimated tax payments for the current year.
Safe harbor rule: Pay at least 90% of your current year tax liability OR 100% of your prior year liability (110% if AGI exceeds $150,000), and you'll avoid underpayment penalties.
If you've fallen short, make a fourth-quarter payment before December 31st.
Bonus: Get Your Records Organized Now
Clean bookkeeping makes tax filing easier and identifies deductions you might miss.
Quick wins before year-end:
Reconcile all bank and credit card accounts
Ensure subcontractor invoices are properly categorized
Review owner draws vs. distributions
Organize receipts for equipment and materials
Update your fixed asset listing (critical with new depreciation rules)
The Bottom Line: This Year Is Historic, Don't Miss It
Once January 1st hits, these opportunities are gone forever. You can't retroactively place equipment into service. You can't go back and change when a project completed. You can't make current year retirement contributions next year.
And you can't recapture the historic combination of $2.5 million Section 179 and 100% bonus depreciation that exists right now.
Your Action Plan (This Week):
Call your equipment dealer about purchases you're considering
Schedule an urgent meeting with your CPA (don't wait until March)
Review your WIP schedule for projects near 95% completion
Calculate your retirement contribution capacity
Prepare strategic expense prepayments
Gather documentation for potential tax credits
Need Help? This Is What CCA Do
At Construction Cost Accounting, we specialize in helping construction companies navigate these tax planning decisions. We understand recent tax law changes and how to maximize every available tax benefit.
The strategies outlined here could save your construction company tens of thousands or more but only if you act before December 31st. This is the year to accelerate equipment purchases. The deadline is real. The savings are real. The time to act is now.
Disclaimer: This article provides general tax planning information for construction companies based on current tax law. Tax situations vary based on entity structure, income levels, and specific circumstances. Always consult with a qualified construction-specialized CPA or tax advisor before making tax decisions.
