With so many details to consider, taxes for construction business owners can be complicated.
On top of that, tax laws and rates change regularly.
If you don’t stay on top of what’s new, your construction business could potentially suffer and lose money.
Knowing the tax changes and how they can affect you are key to a company's success.
In this guide, we’ll outline some of the tax changes for small business owners in 2022 and how you can be prepared for them.
Small Business Taxes Depend on How Your Business Entity is Structured
How you pay your taxes and how much your taxes will be is dependent on how your business entity is structured.
Small businesses (including construction companies) have choices in how to set up their business entity. These choices include:
- C Corporation
- S Corporation
- Sole proprietorship
- Partnership; and
- LLC (Limited Liability Company)
Though a construction business may structure their company as a C Corporation, most small businesses identify as pass-through entities (S Corporations, partnerships, LLCs, etc.). In fact, 95% of small businesses choose to structure themselves as pass-through entities.
Corporations pay a flat tax rate of 21%, and owners and stakeholders are taxed separately from the business entity.
Pass-through entities are different because they pay their federal income tax directly with their individual income tax returns. Tax rates vary depending on income, so let’s take a closer look at tax rates for 2022 below.
Tax Rates: 2021 vs. 2022
Business owners are taxed at seven different rates set by income amounts:
These charts give a quick breakdown of tax rates and how they will change for the 2022 tax year:
Qualified Business Income Deduction (QBI): How It Can Help Some Construction Businesses
If you’re looking at the above tax rates and are thinking it might be a good idea to structure your business as a C Corporation since they pay a 21% tax, think again.
Even though pass-through entities may pay up to 37% in taxes, many of these small businesses also qualify for a new qualified business income (QBI) deduction — a deduction that may be more beneficial than the taxes associated with C Corporations.
The Tax Cuts and Jobs Act of 2017 allows some businesses to deduct 20% of qualified business income. As long as the business works in a qualifying industry, the deduction is available for those who file jointly and make less than $315,000 or under $157,000 for other tax filers.
In the end, this QBI deduction may be the way to go to keep you in a lower tax bracket.
And don’t forget about the many other types of deductions small business owners can take, like:
- Staff tax deductions - Compensation, employment taxes, fringe benefits
- Vehicle and equipment deductions
- Marketing expense deductions
- Travel expenses
- And more
New Tax Laws for Construction Business Owners in 2022
Much will stay the same as far as taxes for small businesses goes, but there is one new tax law that construction business owners should be aware of.
This new tax rule for 2022 has to do with digital payment services like PayPal, Venmo, and Zelle — just to name a few — and it can be found in the American Rescue Plan Act of 2021.
Many construction businesses likely receive their payments in other forms, but if you regularly use one of these digital services, know that the IRS is tracking it and you’ll receive notifications of taxes due on certain services or goods.
Starting in 2022, if you receive more than $600 for goods or services from customers, you’ll be required to report that amount to the IRS.
If you’ve never tried Flexbase, now might be the perfect time to get started.
Not only does the Flexbase credit card help with cash flow, but we offer all sorts of other services for construction business owners like:
- Track, file, and collect on invoices
- Deliver documents and legal notices
- Streamline AIA billing
- And more
Things Construction Business Owners Should Remember in 2022
No doubt, the pandemic has brought major changes for business owners in the last two years, especially when it comes to income and taxes. When gathering your tax information and filing this year, pay attention to a few things:
- The CARES (Coronavirus Aid, Relief, and Economic Security) Act brought about the Paycheck Protection Program (PPP). That loan was forgivable as long as it was used for expenses like payroll and rent or mortgage. Any money that your business received through the PPP that was forgivable will not be taxable. Any amount that was not forgiven is taxable.
- The Economic Industry and Disaster Loan may have been available to you through the Small Business Administration — a loan that you must still pay taxes on.
- The Families First Coronavirus Response Act (FFCRA) may have required your business to give sick leave to some of your employees who became sick with COVID-19. If you made these types of payments to any of your employees, you are eligible for certain tax credits.
- Also under the CARES Act, the deduction for business interest expenses was increased for some businesses.
Don’t Forget About Other Small Business Taxes
As a small business owner, you are probably aware of the many other types of small business taxes you may be responsible for. Make sure to take these all into account when estimating taxes due and planning to pay them.
Other small business taxes a construction owner may need to know about include:
- Income tax
- Self-employment tax
- Employment taxes (includes payroll taxes)
- Excise tax
- Estimated taxes (if you are required to pay quarterly taxes)
Whether Your Taxes Increase or Decrease in 2022, the Flexbase Credit Card Is Ready When Your Cash Flow Challenges Remain
Taxes — it’s one of the things you can’t escape, especially if you’re a small business owner.
Educating yourself about small business taxes and the changes that regularly occur is one step in the right direction to keep your business growing and successful.
But you know that even with the best efforts and intentions, cash flow is often a challenge for those in the construction industry.
And that’s why Flexbase has created a credit card designed specifically for construction business owners.
With the Flexbase credit card, you’ll enjoy these tools and benefits:
- 0% interest for 60 days*
- $0 annual fee and no security deposit
- Receipt tracking by project
- More credit because credit is based on future invoices, not a credit score
- No personal liability
Getting your taxes in order and staying up with the latest tax rules can be a taxing job (pun intended). But handling your cash flow doesn’t have to be a full-time job. Flexbase makes it easy and streamlined.
Get pre-approved today.