Contractors Center Point

Positive Changes for Contractor Cell Phone Reimbursement Rules

As reported by the Construction Financial Management Assocociation in its November Newsletter, The IRS has released new contractor-favorable guidance that will allow contractors and employees to exclude the value of employer-provided cell phones from employee income without burdensome documentation requirements. The IRS guidance includes 1) a notice and 2) an internal memo to IRS examiners, both of which were issued in the wake of a statutory change made by the Small Business Jobs Act of 2010.

The statutory change removed employer-provided cell phones from the definition of “listed property.”  Under tax law, contractors may not take a deduction for “listed property” unless the contractor can prove a business use. Prior to the new cell phone rules, all employees using employer-provided cell phones needed to prove that they were using their phones for business to receive an expense reimbursement, and then include the value of their personal use in their income. The requirements for proving business use were extensive and burdensome for both employees and contractors.

The new rules hold that if there are substantial “business reasons” for an employer to provide a cell phone to an employee (other than simply to provide the employee with the cell phone as a form of compensation), the value of any use of an employer-provided cell phone is excludable from the employee’s income. The IRS indicated that the business use of the cell phone will qualify as “a working condition fringe benefit,” and the personal use as “de minimis fringe benefit,” which means that employer-provided cell phone use now is deductible by the contractor and tax-free to the employee, without the burden of having to prove the business use, and without needing to separate personal use from business use.

Surety Underwriters’ Outlook for Construction Markets Sours

Surety underwriters have a downbeat outlook for the recovery of construction markets, according to FMI’s second annual Survey of Surety Providers. Sixty-two percent of respondents said the U.S. nonresidential construction market will not experience growth until 2013, and 19 percent do not expect the recovery to occur until 2014.

The results are in marked contrast to FMI’s 2010 survey results, according to which the majority of respondents expected the downturn to end by late 2010 or early 2011. Only 5 percent of 2011 respondents are confident that their client construction firms are “well-positioned,” with good exposure to stable or growing markets. Surety underwriters are concerned that firms are failing to reduce overhead costs and straying from core competencies. Fifty-seven percent of respondents expect their clients to have more difficulty in obtaining bonding one year from now, and 67 percent believe clients will have more difficulty obtaining a bond two years from now.

“Surety providers look at three key factors when considering bonding applications: the expertise of the management team, the strength of the balance sheet and project history,” says Curt Young, vice president of FMI’s Investment Banking Group, which conducted the survey. “If a company is struggling financially, it is likely they have engaged in business practices that will have a detrimental impact on their long-term success.”

To learn more about this report please visit FMI's website at www.fminet.com. To learn more about financial and economic information impacting the construction industry, please contact the construction professionals of McKonly and Asbury, LLP.

IRS Issues Guidance For Reporting Health Care Costs On Employees’ W-2S

The Internal Revenue Service (IRS) in January offered additional guidance on a provision in the Patient Protection and Affordable Care Act that will require employers to report the cost of coverage under an employer-sponsored group health plan on each employee’s W-2 form.

Under the new guidance, the IRS reinforced its previous statements that reporting is optional for 2011 W-2’s that will be issued this month, but will become mandatory on 2012 W-2’s issued in 2013. Employers who distribute fewer than 250 W-2’s are exempt from the reporting requirement until at least 2014, and possibly longer.

The guidance also clarifies that employers can, but are not required to, report contributions to health reimbursement arrangements in calculating health care costs. In addition, the cost of providing coverage through employee assistance programs, wellness programs or onsite medical clinics is not required to be reported if the employer does not charge premiums for the coverage to COBRA beneficiaries.

The cost of coverage that is taxable to employees, such as for a dependent over age 26, must be reported on the W-2 and contributions employees make to flexible spending accounts are to be excluded from the health care cost figures.

For more information, visit the IRS website or contact the construction professionals of McKonly and Asbury, LLP..

Housing Climbing Out of The Basement, Will Support Growth in 2012 and 2013

On December 21, PNC Bank Economic Division issued a report regarding the current and future outlooks of the housing market. PNC reports that the housing market will grow in 2012 and 2013. Highlights of the report are as follows:

  

•  Housing data released for November 2011 show better homebuilding and sales activity than anticipated
• Activity remains at low levels, but is improving; most of the growth in construction is coming from multifamily housing
• There were downward revisions to existing home sales from 2007 forward, but this does not change the outlook.
• A housing turnaround will contribute to modest but sustained economic recovery in 2012

Click Download Housing to read the full report. For further information on the construction industry, please contact the construction professionals of McKonly and Asbury, LLP.

Research and Development Tax Credits - Does Your Company Qualify?

The Research & Development (R&D) Tax Credit can provide, among other things, a hidden and immediate source of cash for many companies as well as a significant reduction to current and future years’ federal and state tax liabilities. 

 Do you design, develop or improve prod­ucts, processes, techniques, formulas, inven­tions or software? If your company has in­vested time, money and resources towards the advancement and improvement of its products and processes, then you may qual­ify for the R&D tax credit. The R&D tax credit regulations allow eligible taxpayers to “look back” to all open tax years (typically 3 years plus the current year) for potential R&D cred­its that were never claimed. 

Today's contractor may not realize that their activities may entitle them to generous R&D tax incentives, and even if they do, the traditional notions of R&D may cause contractors to limit qualified research expenditures to activities associated with new product and invention developments. However, in many cases, contractors spend a considerable amount of time and effort to develop designs and processes that achieve optimized engineering process performance. Furthermore, many contractors conduct extensive activities to design and develop the engineering processes themselves to achieve specific project requirements or to stay ahead of competitors in the marketplace. All these activities may require time and money both in the engineering department and on the job site itself, which may be captured as qualified research expenditures leading to significant tax benefits. If you think you have to be a large public corporation developing products and inventions to be conducting qualified activities as defined by the Internal Revenue Code, think again.

If your company is in the contracting industry and you've recently introduced new or improved designs or processes there is a strong chance that you could benefit from an R&D tax credit study.

Examples of activities and innovations eligible for R&D tax incentives include the following: 

• Means, methods and construction techniques development

• Structure and facility design for constructability