2023 Marcum Year-End Tax Guide

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Under current law, the IRS requires the capitalization of R&D expenses over five years, but if the Build It in America Act passes, those R&D expenses will no longer need to be capitalized through December 31, 2025. This is a tax credit on items the contractor already paid for, and provided the contractor qualifies, the contractor can use this credit to apply to taxes owed on the company’s profit.

• 45L Tax credit 45L tax credits are a per unit

• credit on items the contractor already paid for, and provided the contractor qualifies, the contractor can use this credit to apply to taxes owed on the company’s profit. Therefore, it is essential to address and assess the applicability of these and other tax credits to reduce the contractor’s overall tax burden.

tax credit for home builders and developers of energy-efficient residential properties. Effective January 1, 2023, credits have increased to $2,500 (Energy Start Certified) or $5,000 (Zero Ready Energy Certified) per unit if prevailing wage requirements are met. Again, given this is a tax

COST SEGREGATION STUDY A cost segregation study is an immediate acceleration of depreciation expense and is ideal for any real estate that a construction company or shareholders own. Instead of depreciating commercial property over 39 years, this study will break down the building into sub-components, reclassing 39-year property into property classes with depreciable lives of 15 years or less. Once these are classified into lower-class lives, they are eligible for bonus depreciation. This should be considered for 2023 as the 80% allowable bonus depreciation in 2023 will drop to 60% come January 2024. Given the opportunities under the Internal Revenue Code, contractors likely qualify as real estate professionals and can offset the losses against other income. In summary, a contractor operates in a highly competitive environment with tight margins, rigid job schedules, and a lot of uncertainty. Understanding the options afforded to contractors under the IRS code can and does provide them with some relief and puts them in a more competitive position. Maximum Deductions Based on Building Size

PRE-IRA DEDUCTION MAXIMUM (JAN 1, 2006 – DEC 31, 2022)

POST-IRA DEDUCTION MAXIMUM* (JAN 1, 2023 – ONGOING)

BUILDING SIZE IN SQUARE FEET

BUILDING EXAMPLES

WITHOUT PREVAILING WAGE

OFFICE / ELEMENTARY SCHOOL

50,000

$90,000

$250,000

$25,000 - $50,000

HIGH SCHOOL / MULTISTORY RESIDENTIAL

100,000

$180,000

$500,000

$50,000 - $100,000

HOSPITAL / WAREHOUSE

500,000

$900,000

$2,500,000

$250,000 - $500,000

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