Running a construction business can be a challenge, especially given the unique conditions of the past year. PPP loans and tax breaks offer some alternatives to good construction leadership, making it easier to maintain employees during this labor crisis. Recent changes to the PPP loans mean that you need to stay up-to-date on how the loans and taxes will affect your construction business.
Changes to the PPP Loans and Taxes
Previously, construction businesses, including independent contractors, self-employed people, and sole proprietors, had to use their net profit to calculate their Payback Protection Program funding. Now, these businesses can use their gross income instead.
You Cannot Go Back and Change the Calculation
Just keep in mind that if you already applied for your PPP loan and had it approved, you cannot increase the loan amount. However, the Small Business Administration may review some of the PPP borrowers. This would include construction businesses that are first-time borrowers and have a gross income of over $150,000.
Despite this, there is currently a push towards letting businesses who already applied change their calculations.
Understanding Your Tax Deductions From PPP Loans
Those with construction careers or who run other small businesses will find that PPP loans make a significant difference in their 2020 corporate taxes. If you received forgiveness for the PPP loans, you can deduct certain expenses.
Specifically, you can have your loan forgiven if you use 60% or more of it on payroll costs. The remaining 40% has to go to approved items, including utilities and rent.
These deductions let your business dramatically reduce your taxes, as paying a construction salary to employees and the related expenses tend to be a big-ticket item.
Expert Advice About the PPP Loans
Experts advise you to treat your PPP loan like you would any other loan and list it as a liability. You should only change this if the SBA formally forgives your loan.
What to Know about the Deadline for PPP Loans in Construction Businesses
If your business needs to take advantage of PPP loans to pay construction salaries or other relevant expenses, you should be aware of the deadlines. There’s a two-week period for small businesses that have 20 employees or less starting on March 9, 2021. As of writing, the deadline for all applications is March 31, 2021.
You should know, however, that lenders do not have to accept applications until March 31. Some may create an earlier deadline so that they can process the applications in time.
Many advocates are pressuring lawmakers to extend this deadline. Senators, advocates, bankers, and construction companies agree that an extension would make sense. They argue that the program should continue as long as the crisis lasts. Others argue that giving companies an extra month or month-and-a-half would be enough.
Other Tax Considerations for Construction Businesses
In addition to the impact of PPP loans on your taxes, there are a few other things to consider.
Do not forget to include your deferred FICA payments as a liability. You should also ensure you include the employee retention credit, which can be let you deduct as much as $10,000 per employee.
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