“Public contractor” means a person…has entered or is attempting to enter into a contract for the provision of goods or performance of services with a governmental entity. –LawInsider
Data from 2020 is automatically discounted because the year itself was lost in space, business-wise. It was a financial survival-of-the-fittest situation at best.
Public contractors are looking forward to construction spending increases in 2021 and beyond. More jobs mean more money. It may also mean more taxes.
Construction Industry Tax Breaks and Public Contractors
If you’ve been feeling picked on lately, it may not be paranoia. While Amazon often pays no federal taxes, there’s been a focus on construction industry firms with low tax rates. Four construction public contractors actually showed negative tax rates and three paid no federal taxes last year.
As an individual taxpayer, you would get a check from the government if you had a negative tax situation. It doesn’t work like that for corporations. Rather than a rebate, they often receive a tax credit for the next year.
In 2018, the corporate tax rate was 21%. Construction’s overall federal tax rate was 8%, while most public companies’ was 19.4%. Profitable Fortune 500 companies saw an 11.3% federal tax rate that year.
President Biden is proposing raising the corporate tax rate from 21% to 28%. The increase is to help fund his infrastructure rebuilding plan. Oppositional senators (and several manufacturing/construction representatives) say the one trillion infrastructure spending can be paid for without raising the corporate tax rate.
Opponents say the negative impacts could include:
- $117 billion loss in gross domestic product the first two years
- $80 billion decline in equipment investments the first two years
- Approximately 600,000 jobs lost every year for 10 years
- Wage reductions of $662/household
Ways public contractors decrease tax liabilities include:
- Asset depreciation
- Prior years’ losses – Companies could carry losses from 2018-2020 for five years w/ CARES (Coronavirus Aid, Relief, and Economic Security) Act
- Research/development tax credits
- Stock option compensation (deducted as an expense)
Look on the Bright Side
You may see a tax increase soon, but it will be a tax on your profits, which will also increase.