Ready for Financial Confidence?
Year-end is a strange season to run a construction company.
Half your crew is counting down to Christmas week, a couple of jobs are paused waiting on an owner who’s already on vacation, and somehow this is also the season everybody wants your numbers. Your CPA wants the WIP, your bonding agent wants the WIP, and your banker wants to “touch base before year-end,” which has never once meant lunch.
And somewhere in the middle of all that, the equipment dealer calls about a great year-end deal on the machine you’ve been eyeing. Then he mentions more than once that you can write the whole thing off.
What you decide between now and December 31 doesn’t stay in this year. It shows up on your tax return, on your financial statements, and in the conversation with your surety about how much work you can take on next year. You don’t need to become an accountant. You do need to know where the traps are, so you know when to slow down and ask somebody.
The examples here come from construction, but the cash-versus-financing question in section 2 applies to any business weighing a big purchase.
1. A short month can make a good job look bad
Your overhead doesn’t take Christmas off. The yard, the supervisors, the insurance, and the office cost about the same in December as they do in June. What changes is how many hours your crews really work.
If your books spread overhead across jobs based on that month’s hours, fewer hours means each hour carries more overhead. Say your crews work a quarter fewer hours in December. Every job that ran that month just got charged about a third more overhead, and nothing on those jobs changed except the calendar.
That matters because your year-end WIP is what your bank and bonding company read, and a job that suddenly looks less profitable makes underwriters nervous. It also makes your project managers look worse than they are, and it throws off the numbers you’ll bid from next year.
The fix is usually pretty simple. Set one overhead rate for the whole year based on a normal year’s hours, and put the slow-month shortfall on its own line. Your jobs stay comparable from month to month, and you can see what a slow December cost you in one place instead of spread across every open job.
Ask your bookkeeper: Do we set our overhead rate once a year or every month?
2. Before you buy that machine
The equipment dealer isn’t wrong about the tax break. Right now, most contractors can deduct the full cost of qualifying equipment in the year it goes to work, and on a $400,000 machine, that might save you around $120,000 in taxes, depending on your rate.
There are a couple of catches. The first is timing. The machine has to be delivered, set up, and ready to work by December 31, so if it’s still on the truck or sitting in the yard waiting on an electrician, it doesn’t count yet. Take a dated photo once it’s running.
The second one rarely comes up on the showroom floor. Your bonding company doesn’t read your tax return. It reads your balance sheet, and it pays close attention to your working capital, which is basically the cash and receivables you have left after covering what you’ll owe over the next twelve months. Many sureties set your bonding limit at ten times that number or more, so if you pay $400,000 cash for a machine, you could shrink the size of the work you can bond by as much as $4 million, depending on how your surety does the math. That’s a steep trade for $120,000 in tax savings.
You can still buy it. Look at financing before you write the check. Financed equipment still qualifies for the deduction, and your cash stays on the balance sheet where your surety can see it.
Also ask whether this is the year you want the deduction at all. A write-off is worth the most in your highest-tax year, so if this year was lean and next year’s backlog looks strong, saving some of it for later might be the better call.
Ask yourself: Do we need this machine, and would we buy it without the tax break?
Ask your CPA: If we pay cash versus finance it, what happens to our taxes and our bonding?
3. When spending more before year-end raises your taxes
Most year-end tax advice tells you to spend money before December 31 to lower your taxes. That can work for a lot of businesses. But for some contractors, it does the opposite.
Larger contractors often report income using a method called percentage of completion, which means the IRS counts a job’s profit as you spend money on it. So if you spend more on a job before year-end, you can end up pulling more income into this year and raising your tax bill instead of lowering it.
Smaller contractors are generally exempt, and a 2025 tax law change exempted most new residential construction contracts. Your CPA knows which method your return uses, so find out before you start pushing job costs into this year.
Ask your CPA: Does our tax return use percentage of completion, and on which jobs?
Your year-end cheat sheet
If you only do one thing after reading this, get answers to these five questions before December 31:
- Your bookkeeper: Is our overhead rate set monthly or yearly?
- Your project managers: What will each open job really cost to finish?
- Your CPA: Which tax method do our jobs use?
- Your CPA: If we buy equipment, should we pay cash or finance it, and what does each do to our taxes and bonding?
- Yourself: Would we buy this machine without the tax break?
A second set of eyes before year-end
You don’t have to master overhead allocation or the tax code. You do want someone to look at your numbers before your banker, your surety, and the IRS do, and tell you plainly what to do about them.
Each fall, Attracct sits down with Louisiana contractors to set steady overhead rates, review the WIP job by job, and run the real math on year-end equipment purchases. Since equipment has to be working by December 31, the earlier we look, the more options you have.
Book your year-end planning meeting, or call 225.460.4700. We’re at 11606 Southfork Ave, Suite 201, in Baton Rouge.
This article provides general information, not tax advice for your specific situation. Talk with a qualified professional before acting on it.
