Tried & True Tax Planning Strategies for a More Profitable 2026

For construction companies, tax season can offer a valuable opportunity to look back on the prior year and assess the efficacy of planning strategies. Careful analysis and the guidance of a tax professional familiar with the construction industry can yield insights that will help you improve your plans — and profitability — over the year ahead.

When revising your tax plan, it’s essential to account for anything that has changed due to recent legislation. In the wake of the One Big Beautiful Bill Act (OBBBA), that’s particularly important now. In addition to this major new legislation, rapid policy shifts have imposed certain pricing challenges. To overcome them, make sure your plan for 2026 includes certain operational adjustments that will help you identify and respond to supply chain upheaval and increasing input costs.

Here are several of the perennial tax strategies that are always among our top recommendations for construction firms refining their practices, as well as new insights that may help your business take more complete advantage of opportunities introduced by OBBBA.

Tax Planning Top Priorities

Accounting Methods

Depending on their volume and length of contracts, contractors can report tax revenue from construction contracts under several methods of accounting, each of which can produce different results. Selecting the proper allowable method is the first choice construction companies should make when tax planning.

Possible Allowable Methods of Accounting

Review work-in-process (WIP) schedules for open and closed jobs to identify contracts that lend themselves to deferral opportunities. The intended use of the project, the type of work being performed and the percentage completed at year-end are important factors.

Understanding the WIP, your contract language and having thorough knowledge of Internal Revenue Code (Code) section 460 (special rules for long-term contracts) will enable you to identify tax deferral opportunities.

Takeaway 

Contract reporting for financial statement and tax reporting purposes should be different due to Code section 460. Applied correctly, the Code should result in income tax deferrals.

Accounting Methods OBBBA Update

The OBBBA increases the types of construction projects excluded from the requirement of using the POC method. Under prior law, contractors other than certain small contractors were required to use POC for long-term contracts unless they were home construction contracts. The home construction exception applied to a building with four or fewer dwelling units. Where an exception applies, the contractor can use the completed contract method, which can defer profit recognition until the time when construction is substantially complete, or any other acceptable accounting method.

The new law expands the home construction exception to residential construction contracts, which includes apartment buildings, condominium complexes, student housing, long-term care facilities, prisons and other properties with multiple residential units. If the average stay is more than 30 days, it qualifies. This law change is effective for contracts entered into in tax years beginning on or after the date of enactment of the OBBBA (i.e., for contracts entered into in 2026 for calendar-year taxpayers).

Takeaway

This could require a method change for contractors; however, allowing the use of any acceptable method for tax purposes (cash, completed contract, etc.) while remaining exempt from alternative minimum tax and look-back interest calculations should result in significant tax deferrals.

Alternative Minimum Tax (AMT)

Code section 460 directs that using a tax method other than POC can result in AMT. However, many deferral opportunities for companies do not result in AMT:

• Non-long-term contracts are exempt (contracts that begin and end in the same fiscal year).
• Home construction contracts (now including the new definition of residential) are exempt.
• The 10% election deferral is exempt.
• The difference due to Code section 460 cost allocation is not a preference.
• C corporations are exempt.
• Equipment for which a bonus depreciation election has been made is exempt.
• Equipment for which a Section 179 election has been made is exempt.
• The qualified 20% business income deduction is exempt.

Takeaway

AMT is calculated at the owner level for flow-through entities (S corporations and LLCs,) so proper planning and application will result in significant savings.

Bonus Depreciation

The OBBBA restores the 100% depreciation bonus introduced by the Tax Cuts and Jobs Act and makes it permanent. This can incentivize investment in machinery, vehicles and other assets; improve cash flow and accelerate equipment upgrades that have been on hold. This provision applies to property that is both acquired and placed in service after Jan. 19, 2025.

Additionally, the maximum amount a taxpayer may expense under IRC section 179 has been increased to $2.5 million, with the phase-out threshold beginning at $4 million. This becomes increasingly important for companies paying taxes in states that do not conform to the OBBBA’s 100% bonus depreciation.

Takeaway

Balancing construction contractors’ equipment needs with the current tax laws and allowable depreciation methods is a crucial consideration in retaining working capital and the resulting profitable operations.

Job Costing Processes

Between tariffs, supply chain disruptions and other trade factors, the last several years have seen a notable rise in input price instability. Ensure your job costing process is designed to account for changes that can happen quickly, even overnight. Estimated costs should be revisited as often as necessary, as they will have a major impact on the taxable income associated with your projects.

Takeaway

Percentage of completion accounting for financial statement and tax purposes can result in an overstatement of income (and income taxes) if estimated costs are not accounted for properly.

The planning strategies that construction and contracting firms should revisit each year are numerous. But given recent legislative and economic changes, these may be the most important areas of focus for those optimizing your firm’s financial position for a successful 2026.

For a more comprehensive analysis of your business’ posture, make sure to take full advantage of other techniques available to construction companies, including:

• Repair and maintenance regulations
• Owner wages and bonus structures
• The qualified business income deduction
• Research and development credits
• 179D deductions
• Section 45L credits (expiring for jobs that are started after June 30, 2026)
• Work opportunity tax credits
• Strategies relating to pass-through entities and state and local tax (SALT) caps