A tax deduction or tax write-off helps a small business by decreasing the tax liability. The IRS is the federal agency that sets rules and restrictions for tax deductible expenses. Generally, the expenses should be necessary and ordinary. This means that any tax deduction you claim should be critical for your business to run. Let us have a look at 5 tax deductions that every small real estate construction company should consider taking up.

1. Advertising & Marketing

Many real estate construction companies get new clients through word of mouth, and that is okay. However, if there are funds that go towards advertising/ marketing your business, then those are tax deductions that you can take. Make sure to track;

• Money spent on digital channels
• Costs associated with production of materials such as videos, business card etc
• Investments made in print media & Advertising

2. Mileage and Travel Expenses

Mileage is one of the biggest items you can claim on your taxes. If you choose to use the IRS’ standard mileage rate, you need to keep track of exactly what mileage you are driving and when. Some of the occasions to take note of are; driving to and from construction sites, driving to pick up construction materials, meeting clients, among others.

3. Tools and equipment Expenses

In addition to mileage, costs incurred to purchase equipment, vehicles or machinery used can be tax- deductible expenses. Smaller and less-expensive tools can be deducted in full when they are purchased, like a hammer. Larger and more expensive equipment such as vehicles, other machinery can be deducted through a pro-rated amount for the average expected lifespan of the equipment. Important to note is that to deduct vehicle expenses, the vehicle’s primary use should be for construction-related activities.

4. Self Employment Tax

As the business owner, this deduction is for you as you are considered self-employed. As a self-employed person, you have to pay more for Medicare and Social Security taxes, because you don’t have an employer splitting the cost with you. Luckily, the IRS allows freelancers and entrepreneurs to deduct the amount equivalent to what an employer would cover if you were an employee, which is half of the self-employment tax contributions. 

5. Subcontractor Labor Hours

Depending on the work you are doing, sometimes it may be necessary to hire some help. Regardless of whether you have permanent employees or hire independent contractors when need arises, the IRS allows you to fully deduct all of the wages you pay. To qualify for this deduction, the salaries that you pay must be reasonable in light of the services your employees and contractors provide. 

There are more tax deductions that construction companies can take advantage of. A real estate tax accountant with expertise in real estate construction is best suited to help you understand the appropriate deductions at any given time. Lastly, keep all important documentation such as receipts in order to claim any of the deductions.