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Tax planning is an ongoing process that contractors should monitor throughout the year; however, most tax planning is done from the end of one calendar year through the tax preparation season of the next year when it is too late to really implement any profitable measures. Now is an optimum time to meet with your CPA, review your financial situation and see what you can do to lower your tax bill. Here are a few ideas to consider:

1. Review your year and act accordingly. If your construction business is using the cash basis method of accounting and you’re having a good year, try to move up some of your expenses to offset your income. For example, if you prepay several months of rent before Jan. 1, the payments will count as a 2006 expense.

Conversely, if you haven’t had the best year and, thus, may be in a lower tax bracket, you may want to accelerate some income into 2006 to benefit from the lower tax rate and delay your expenses for what you hope will be a larger deduction next year. One option may be to see whether you can motivate customers with large balances to pay by offering a nominal discount for payment before Dec. 31.

2. Put off billing, step up collections. If you operate under the accrual basis method of accounting, you must record income and expenses when they’re earned and incurred, regardless of when you receive or spend the cash.

To delay some of this income for tax purposes, consider waiting to send some bills until after the first of the year. Also, step up collection efforts - you might be able to deduct bad debts.

3. Sweeten purchases with Section 179. If you’re considering making a large purchase before year end, keep in mind the Section 179 deduction. Under it, you can fully deduct up to $108,000 of business property placed in service in 2006 rather than taking depreciation deductions over several years. The phase-out limit is $430,000. You should consider making equipment purchase in the second half of 2006 or 2007. Starting in 2008, the maximum Section 179 deduction is scheduled to drop to $25,000 under current law.

Even if you’re a cash basis taxpayer, you need not pay for the equipment before year end to take the Sec. 179 deduction. Fixed assets can be paid for in the following year as long as they are placed in service by year end. As always, consider whether a large purchase makes financial sense for your construction company rather than buying something just for a tax break.

4. “Manufacture” some tax savings. Commonly known as “the manufacturers’ deduction,” the Qualified Production Activities Deduction (QPAD) allows you to deduct 3% of taxable income from qualified production activities. These include certain construction, engineering and architectural services. (This amount will rise to 6% next year.) The deduction is limited to 50% of wages you report on employees’ W-2 forms.

5. Go Zone incentives. There are a number of incentives for contractors in the Go Zone, including additional Section 179 depreciation, bonus depreciation, employee work retention credits and work opportunity tax credits. Your tax advisor can explain these in detail, or contact rgagnet@htbcpa.com for a brief PowerPoint overview presentation.

These are a few of the options that can be considered in mid year tax planning. Setting aside some space on your crowded calendar to choose the strategies that are right for your construction business will no doubt turn out to be time well spent.

Ronnie Stamper is a Certified Public Accountant and is the partner in charge of Hannis T. Bourgeois, LLP’s Construction Industry Department. He has 33 years of experience in public accounting with an emphasis in the construction industry. He can be reached at rstamper@htbcpa.com or (225) 928-4770.