Taxes are written on a calculator signifying the importance of understanding industry specific tax knowledge for small business owners.

Industry-Specific Tax Considerations 

PSA for Small Business Owners 

When it comes to business taxation, one size does not fit all. As a small business owner in Wisconsin, it’s important to be aware of your industry-specific tax process to abide by laws and maximize profits. At Tostrud & Temp we are proud to offer accounting services to small business owners in Wisconsin and have come to learn the processes for multiple industries. The long list of industries makes it hard to find the right information for you and your business. We’re here to make this process less complex and tedious by focusing on the ins and outs of the top three small business industries in Wisconsin: construction, real estate, and retail trade. Let’s dive in. 

  1. Construction 

Employment Taxes and Payroll Compliance 

The payroll process for the construction industry has an extra level of complexity compared to other industries. Construction businesses often have complex labor structures, with a mix of full-time employees, seasonal workers, and subcontractors. Managing employment taxes and payroll compliance is vital. Worker classification as an employee or independent contractor is essential because misclassification can lead to hefty penalties for the company. 

Equipment Depreciation and Deductions  

Construction businesses heavily rely on equipment and machinery. Properly handling equipment depreciation is crucial. Section 179 deductions allow you to deduct the cost of certain equipment based on the year it was purchased. Under certain circumstances, you can take additional depreciation on equipment purchases which can result in significant tax savings for your businesses.  

Sustainable Construction Tax Credits  

In recent years, the construction industry has seen a growing emphasis on sustainable building practices. This not only benefits the environment but can also provide tax incentives. Green building tax credits are available for construction projects that meet specific environmental criteria. These credits can offset tax liabilities and make sustainable construction more financially realistic. 

  1.  Real Estate 

Passive Income Taxation  

Many real estate investments generate passive income, which is subject to different tax standards compared to active income. The IRS has specific rules governing the treatment of losses from passive income and it’s important to understand the differences. Other types of income, such as rental income, may be subject to a 3.8% net investment income tax (NIIT), which applies to individuals with high incomes. Strategies for managing NIIT can lead to big tax savings. 

Opportunity Zone Investments  

Opportunity Zones, established by the Tax Cuts and Jobs Act of 2017, offer significant tax benefits for investments in economically distressed areas. If you invest capital gains in opportunity zones, you can defer paying taxes on those gains until 2026; And if you hold your opportunity zone investment for at least ten years, any capital gains on that investment will be tax-free. 

Real Estate Professional Status for Tax Benefits  

To qualify as a real estate professional to receive tax benefits, you must meet specific IRS criteria. You or your spouse must participate in real estate activities, which can be challenging to prove but is essential for tax benefits. If you’re involved in rental real estate activities, understanding the IRS rules for active participation directly impacts your deductions. 

  1. Retail Trade 

Employee Benefits and Retirement Plans 

Retailers often employ a significant number of workers. Managing employee benefits and retirement plans is vital. Retail businesses must consider providing employee benefits such as health insurance and retirement plans to attract and retain talent while managing associated tax implications. Qualified retirement plans like 401(k) or SEP IRA plans offer major tax benefits for employees and employers must fully understand what they’re offering. 

Online Retail and E-commerce Taxation  

The rise of e-commerce has introduced new complexities to retail taxation. Navigating sales tax compliance for e-commerce can be challenging, especially with the evolving environment. Hiring an accountant for your business can help keep track of changing regulations and tricks within the online landscape. 

Sales Tax Compliance and Nexus Requirements 

Sales tax is a primary concern for retailers, and compliance is crucial. Understanding when, where, and how to collect sales tax is essential. This involves charging the correct rates and reporting tax collections to the appropriate authorities. Nexus tax is a tax imposed by states on businesses that function within their borders. Comprehending the nexus rules for each state in which you operate is essential to avoid legal issues. 

Reach Out for Help 

Understanding your industry-specific tax considerations can be challenging, but there’s no reason to do it alone. Tax preparation for small businesses is incredibly important, and understanding your industry-specific tax considerations is a job on its own. Reach out to us at Tostrud & Temp or stop in our office on 4th Street, S La Crosse to talk with our experts about accounting services for your small business.