Tax Reform Impact on Construction Companies

Tax Reform Impact on Construction Companies

On December 22, 2017, President Trump signed into law H.R. 1, formerly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA). 2017 tax reform is the first major tax overhaul in 30 years, and will affect individuals, all types of businesses, tax-exempt entities, international taxation, and many other areas of tax law. Although the act is final, there is still a significant amount of guidance needed before we can really understand all of the tax reform. Below are just a few of the tax provisions affecting the construction industry.   Depreciation Changes For purchases made after September 27, 2017, qualified property is eligible for 100% accelerated depreciation. Qualified property can now be new or used. Qualified property includes work trucks, equipment, and various real property improvements. The change is subtle if your company has been utilizing Section 179 depreciation, but depending on the size of the company, there may be new opportunities to take deductions in the year qualified property is purchased.   Domestic Productions Activity Deduction (DPAD) DPAD has allowed most contractors to take a nine percent deduction related to their domestic activities for many years. With the tax changes, DPAD was eliminated. The lowering of various tax rates for corporations and individuals, along with a new 20% deduction for individuals on their pass through income, led congress to remove the favorable construction industry DPAD deduction.   Corporate tax change The C-Corporation (C-Corp) tax rate has been reduced to a 21% flat tax rate. Also, C-corp alternative minimum tax (AMT) has been eliminated. These two changes, combined, may potentially make a C-Corp a more attractive...
The Power of the Profit Fade Analysis for Construction Companies

The Power of the Profit Fade Analysis for Construction Companies

One of the most powerful financial tools a construction professional can utilize is a profit fade schedule. What is profit fade? It occurs when profit from a given job gradually decreases over time from the original cost estimate. The result is a job that seemed to be successful in the beginning turns out to be a loser in the end. The culprit lies in increased costs. The reason naturally ranges from any number of causes or frequently is a combination of many factors. Common causes of profit fade are: Ineffective overhead allocation or inaccurate job costing An underperforming project manager Aggressive or sloppy bidding practices that don’t accurately capture cost Costly change orders Poor subcontractor or supplier performance Inadequate job training or supervision Unplanned delays such as adverse weather Fraud or cost-shifting How do you calculate profit fade? Take the difference between estimated gross profit on a given date and compare it to the actual gross profit for that job once complete. Or better yet, do a running trend analysis as work progresses from the initial bid. The end result should be expressed in dollar amounts as well as in percentages. After the analysis is performed, a trend should begin to emerge. This trend could vary based on estimator, project manager, or region, just to name a few. It’s a powerful internal monitoring tool, and if regularly performed it can lead to cost intervention before a job goes entirely south, or additional education can be provided for estimators or project managers who are consistently off. It should be noted that profit doesn’t just fade—there’s also the concept of profit gain,...
3rd Annual ABC Craft Championships

3rd Annual ABC Craft Championships

Every year the Associated Builders and Contractors, Inc. (ABC) hosts a local Craft Championship Competition where 3rd and 4th year apprentices in HVAC and Sheet Metal programs compete to win an all-expense paid trip to compete in the ABC National Craft championship. The event is attended by students throughout the area where they’re able to watch the competition go down, play games and do activities at the various booths, take a ride in a scissor lift, and meet representatives from local construction companies. The event is open to the public and lunch will be served between 11am – 1pm.  Please come join us for an afternoon of construction fun and workforce development. 2017 ABC Craft Championship October 20, 2017 8:00 a.m. – 3:00 p.m. 2201 NE Columbia Blvd. Portland, OR 97211 The Craft Championship was born out of a desire to promote early workforce development for the construction industry, made all the more urgent by the labor shortage. ABC is currently looking for sponsors, volunteers, and/or those willing to host a booth at the event.  Contact Laurie Kendall at lkendall@abcpnw.org or 503-726-5440 for details.   The 2017 competitors are as follows: HVAC Competitors Skyler Benoit Wendel Beachey Scott Kirk Cameron Church Brady Petersen Hunter Davisson Bull Mountain Pro Temp Associates Reitmeier Specialty Heating & Cooling Sheet Metal Competitors  Chris Neffendorf Gilberto Soto Elijah Rodden HVAC, Inc. American Heating HVAC, Inc....
How Two Oregon Legislature Bills Affect Your Construction Company

How Two Oregon Legislature Bills Affect Your Construction Company

Two bills recently passed the 2017 Oregon Legislative session that affect the construction industry. Since I know all of you are eager to sift through employment law in your spare time, allow me to summarize the pertinent points for you. House Bill 2005 – Pay Equity Law The pay equity law is an employer-friendly bill making it easier to defend against a wage discrimination claim brought by an employee.  It allows an employer to pay employees different compensation for the same or substantially similar work. To use an example provided by Amanda Gamblin, Employment Law Attorney and Shareholder at Schwabe, Williamson, & Wyatt, let’s suppose a female roofing employee brings a suit against her employer alleging pay discrimination.  The employer responds that the pay is not discriminatory but is rather based on production, and said employee doesn’t install roofs as quickly as her coworkers, all of whom happen to be male.  The employee then claims that this is indirect discrimination since the average woman can’t install roofs as rapidly as the average male. This employee’s response will no longer hold up in court under the new pay equity statute because the Oregon Legislature has specifically cited productivity as being an appropriate basis upon which to determine pay.  Other permissible bases are education, training, work location, seniority, experience, any system upon which pay is determined by quality or quantity of output, or any combination of the above. There are some other factors that should be noted about House Bill 2005.  First, if an employer performs an equal pay analysis every three years and remedies any resulting discrimination, then an employee...
Financial Forecasting

Financial Forecasting

How do you manage the financial aspects of your company?  Do you plan for future events or do you react as events occur? Most companies do a reasonable job of preparing monthly financial statements.  However, these report on what has already happened. History!  A financial forecast provides a forward looking view that can be an incredible tool for managing your company. A financial forecast is a living document that is monitored and updated monthly.  A forecast uses big picture assumptions to model what your financial statements may look like based on your current knowledge and expectations.  It does not get into the details of the financial data. Following are steps in developing a financial forecast: Identify your vision and goals for the company in the coming year.  Is the company planning to grow significantly, or not.  Is the company planning to move into new markets or types of work, or continue with projects similar to the ones in the past? As you create a vision of where the company wants to go, you’re thinking about the future rather than re-hashing the past. Create assumptions for what you think is likely to happen financially.  Here you consider the goals, but evaluate what is realistically likely to happen.  This is not wishful thinking.  Expected profitability, cash flow, etc. must be identified and projected for the forecast period. If your goal is to increase gross profit from 15% to 20%, you must look at the work in progress to determine if this is realistic.  What is the strategy for improving job profitability?  Is the company planning to bid a different type of...
Jones & Roth Joins Surety Association of Oregon at Top Golf

Jones & Roth Joins Surety Association of Oregon at Top Golf

Friday September 8th, 2017 – The Construction team at Jones & Roth CPAs and Business Advisors was honered to attend the Surety Association of Oregon (SAO) sponsored Par-Tee at Top Golf in Hillsboro. Sureties, insurance agents, attorneys and accountants, met for golfing fun to hit balls assigned using microchip technology into targets.  The more accurate the shot and the farther the distance, the more points earned.  And of course drinks and appetizers only added to the entertainment.  It was a fantastic event, and a success in its mission to bring us together as professionals and get to know one another better. SAO is a professional non-profit trade association for those engaged in the surety industry and related fields.  Quarterly luncheon meetings and activities are held, with its most popular event being the Holiday Party where they feature and bring awareness to a local charity and hold a holiday...