advanced search

Survey reveals many contractors aren’t maximizing tax advantages

Jan 7, 2002 12:00 PM, By EC&M Staff

Many construction firms may be paying more taxes than they have to, reports a recent survey by the Cincinnati accounting firm of Jackson, Rolfes, Spurgeon & Co. (JRS).

Conducted via mail and the Internet this fall in Ohio and Kentucky, the survey asked heads of construction and contracting firms a series of financial questions. JRS was surprised by the number of firms that did not use the accounting method that provided the best tax advantage.

"When asked what revenue recognition method they used for tax purposes, over 60% responded they use the percentage of completion (POC) method," said Jeff Oehler, tax partner-in-charge of the firm’s construction industry service team. "This is somewhat unusual since most of the respondents annual revenue fell into the range of $1-10 million and the POC method does not offer the same tax advantages the OE completed contract method would."

The percentage of completion method requires the profit on each contract to be recognized as work is performed. On the other hand, the completed contract method allows a contractor to defer recognition of the profit on each contract until the contract is completed.

JRS offers an example: If a contractor uses the percentage of completion method, and has jobs in process at the end of the year with $3,000,000 of revenue recognized and 15% gross profit margin on those jobs, they would recognize $450,000 of taxable income on the jobs in process. Had the same contractor used the completed contract method, the $450,000 of gross profit and related $180,000 of income tax (assuming a 40% tax bracket) could be deferred to future years.

The survey also found that more than half of respondents do not have a strategic plan, nor do they intend on creating one.

"A strategy is like a roadmap. It provides direction, but allows for course corrections and new developments," said Jim Rolfes, managing partner of Jackson, Rolfes, Spurgeon & Co. "To run a business without a strategic plan is like floating in a lifeboat without oars. A formal strategic plan provides the structure, goals and benchmarks for growth and expansion."

When asked about the biggest threat to their companies’ growth, respondents cited the tight labor market, government regulation, the economy, and lack of demand for their services.

For a copy of the survey, visit www.jrscpa.com and complete the "contact us" form or call Brenda Collins, marketing director, at (513) 595-8800.

Want to use this article? Click here for options!

© 2012 Penton Business Media, Inc.

---

Acceptable Use Policy blog comments powered by Disqus

Browse Back Issues Select an Issue November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 1, 2009 December 2008 November 2008 October 1, 2008 September 2008 August 2008 July 2008 June 1, 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 1, 2006 May 1, 2006 April 2006 March 1, 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 October 2004 September 2004 August 2004 July 2004 June 2004 May 2004 April 2004 March 2004 February 1, 2004 January 1, 2004 December 1, 2003 November 1, 2003 October 1, 2003 September 1, 2003 August 1, 2003 July 1, 2003 June 1, 2003 May 1, 2003 April 1, 2003 March 1, 2003 February 1, 2003 January 1, 2003 December 1, 2002 November 1, 2002 October 1, 2002 September 1, 2002 August 1, 2002 July 1, 2002 June 1, 2002 May 1, 2002 April 1, 2002 March 1, 2002 February 1, 2002 January 1, 2002 December 1, 2001 November 1, 2001 October 1, 2001 September 1, 2001 August 1, 2001 July 1, 2001 June 1, 2001 May 1, 2001 April 1, 2001 March 1, 2001 February 1, 2001 February 1, 1995 January 1, 2001 December 1, 2000 November 1, 2000 October 1, 2000 September 1, 2000 August 1, 2000 July 1, 2000 June 1, 2000 May 1, 2000 April 1, 2000 March 1, 2000 February 1, 2000 January 1, 2000 December 1, 1999 November 1, 1999 October 1, 1999 September 1, 1999 August 1, 1999 July 1, 1999 June 1, 1999 May 1, 1999 April 1, 1999 March 1, 1999 February 1, 1999 January 1, 1999 December 1, 1998 November 1, 1998 October 1, 1998 September 1, 1998 August 1, 1998 July 1, 1998 June 1, 1998 May 1, 1998 April 1, 1998 March 1, 1998 February 1, 1998 January 1, 1998 December 1, 1997 November 1, 1997 December 1, 1996 November 1, 1996 October 1, 1996 September 1, 1996 August 1, 1996 July 1, 1996 June 1, 1996 May 1, 1996 April 1, 1996 March 1, 1996 February 1, 1996 January 1, 1996 December 1, 1995 November 30, 1995 November 1, 1995 October 1, 1995 September 1, 1995 August 1, 1995 July 1, 1995 June 1, 1995 May 1, 1995 April 1, 1995 March 1, 1995

browse e-newsletters