As the end of the year approaches, construction business owners have an opportunity to review their tax situation and evaluate strategies that may help reduce their 2026 tax liability. Planning ahead provides more flexibility than waiting until tax season, especially when decisions involve equipment purchases, hiring, retirement contributions, or research-related activities.
Consider capital asset purchases before year end
Many construction companies rely on vehicles, heavy equipment, tools, software, and technology to operate efficiently. If your business is considering these investments, placing qualifying assets into service before year end may provide valuable tax benefits.
Current tax rules generally allow eligible businesses to claim 100% first-year bonus depreciation on qualifying new and used assets acquired after January 19, 2025, and placed in service during the applicable tax year. This may allow businesses to deduct the full cost of eligible assets in the year they are purchased.
Another option is Section 179 expensing, which allows qualifying businesses to immediately deduct certain asset purchases rather than depreciating them over time. Depending on your circumstances, a combination of Section 179 expensing and bonus depreciation may provide the most beneficial outcome.
Because depreciation elections can affect future tax planning opportunities, it is important to evaluate these strategies before making significant purchases.
Evaluate opportunities to maximize the QBI deduction
Owners of sole proprietorships and pass-through entities, including partnerships, S corporations, and many LLCs, may qualify for the Section 199A Qualified Business Income (QBI) deduction.
The deduction can generally equal up to 20% of qualified business income, subject to various limitations. Income thresholds, employee wages, and qualified property values can all influence the amount of the deduction.
Business owners approaching the applicable income thresholds may benefit from strategies such as:
- Increasing retirement plan contributions
- Accelerating deductible expenses
- Deferring income when appropriate and permissible
- Reviewing workforce and compensation structures
Since changes intended to improve one tax benefit can affect another, careful planning is essential.
Review research and experimental expenses
Construction companies often invest in process improvements, software development, project innovations, and operational efficiencies. Some of these activities may generate qualifying domestic research and experimental (R&E) expenses.
Recent tax law changes restored the ability to immediately deduct eligible U.S.-based R&E costs rather than capitalizing and amortizing those expenses over multiple years. In addition, certain activities may qualify for the federal research credit.
Businesses should identify potentially eligible expenditures and review available tax incentives before year end to maximize available benefits.
Understand how tax strategies work together
Tax planning is rarely about one deduction or credit. Equipment purchases, depreciation elections, QBI deductions, retirement contributions, hiring decisions, and research incentives can all influence one another.
Starting the planning process before year end provides time to evaluate options, model potential outcomes, and make informed decisions. A proactive approach may help construction business owners identify opportunities that align with their operational goals and tax objectives. We can help you develop that approach.
Frequently Asked Questions
What is bonus depreciation?
Bonus depreciation generally allows businesses to immediately deduct a significant portion or all of the cost of qualifying assets instead of recovering those costs over several years through depreciation.
Who can claim the Qualified Business Income (QBI) deduction?
The QBI deduction may be available to sole proprietors and owners of pass-through entities, including partnerships, S corporations, and certain LLCs, subject to income limitations and other requirements.
What types of purchases may qualify for Section 179 expensing?
Eligible purchases may include vehicles, machinery, equipment, software, and other qualifying business assets that are placed in service during the tax year.
Can construction companies qualify for research-related tax incentives?
Yes. Certain expenditures related to process improvements, software development, engineering activities, and other qualifying innovations may be eligible for favorable tax treatment depending on the facts and circumstances.
Why should tax planning begin before year end?
Early planning provides more time to evaluate purchases, review deductions and credits, adjust business strategies, and implement actions that may affect the current year’s tax liability.
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