IRS Tips for the Construction Business

As a sole proprietor, the IRS offers recommendations for preparing to fill out your tax return. The IRS offers these pointers and other valuable information under the Business section of www.irs.gov. The information in this article is based on the construction industry and it is provided solely to give you, as a business owner a general understanding of the content available on the IRS website. Please consult with the IRS or a tax professional for the facts about your particular industry.

Help From the IRS

One of the first questions you will be asked on your tax return is the primary source of your income for your business. You will be required to enter a six-digit code from a series based on the North American Industry Classification System (NAICS). The purpose of the code is to facilitate the administration of the Internal Revenue Code.

Lines A and of Form 1040 Schedules C and C-EZ is where you are required to select a Principal Business or Professional Activity category. The category must represent the category that best fits your predominant business activity. In other words, it is the one that identifies the main source of your sales or receipts. For example, if you own a construction business there are 24 different codes you can chose from that cover construction of buildings, heavy and civil engineering construction and special trade contractors. If you own more than one business you must complete a separate Schedule C and C-EZ for each business.

According to the IRS, all the income you earn when paid for a job is taxable, regardless if you are paid by cash or check, receive credit on a bill, receive goods or services in exchange, collect the payment later or get a Form 1099 or W-2 showing the amount of income you earned.

It is recommended that you choose either a cash or accrual method of accounting depending on the type of contracts you have, the completion status of your contracts at the end of your tax year or your average annual gross receipts.

Avoid Tax Pitfalls

There are several tax pitfalls such as indirect cost issues and independent contractor or employee classification issues you can avoid by reading and understanding the information provided on the IRS website. You will also find audit techniques guides for the construction industry as well as the other industries under which your business is classified.