Tax Planning for Contractors. Five Places the Structure Stopped Matching the Business

I grew up around these businesses. My grandfather delivered heating oil. My father ran an auto body shop. My stepfather ran an excavation company. I started my own landscaping company at twelve and had six employees by sixteen.

Trade and construction owners are not a target market I picked off a spreadsheet. They are the people I grew up around and the work I actually understand.

So when I say I keep finding money in the same five places, I mean it literally. The same five, over and over, in HVAC companies, excavation outfits, roofers, electricians, landscapers, and light manufacturers across North Georgia.

The pattern is always the same. A business went from $150,000 a year in profit to $500,000 a year without changing a single thing about how it was set up. Same entity. Same paycheck structure. Same retirement plan, or no retirement plan at all. Same conversation with the same CPA in the same week of March. The profit grew. The planning around it never did. And the result is a tax bill nobody saw coming.

1. The Structure Was Built for a Smaller Business

Here is how most trade businesses get set up. Somebody files an LLC. A few years in, an accountant suggests an S corp election. Then the business grows.

That election may have been exactly right when the business cleared $150,000 in profit. At $500,000, it is worth revisiting rather than assuming the answer is still the same. The entity structure is not a one-time decision. It should be reviewed periodically.

A business making more money has a different tax exposure, different retirement plan options, and different exit considerations down the road. Nothing went wrong. The business outgrew a decision that was correct when it was made. Almost nobody goes back and asks the question once the profit changes, and it is worth asking every couple of years.

2. The Compensation Number

If you elected S corp treatment, you already know the basic trade-off. Salary gets payroll tax. Distributions generally do not. So the instinct is to set the wage as low as you can defend.

Two things are wrong with treating that as the whole analysis.

The first is that reasonable compensation is a real standard, not a preference. Set it too low relative to the work you actually do and you have created an exposure that costs more than it saves.

The second is bigger, and almost nobody thinks about it. Your wage is not only a payroll number. It is also one of the numbers that retirement plan designs are built on. A salary set purely to minimize payroll tax can quietly constrain retirement-plan contributions and the associated deduction on the other side. When I see an owner who set a low wage years ago and never revisited it, my first question is not whether that was smart. It is what it cost them somewhere else.

3. The Retirement Plan, or the Template

This is where the largest dollars usually are.

Most trade owners I meet have one of three things. No retirement plan at all. A plan that was set up years ago and never redesigned. Or a basic 401(k) or SIMPLE IRA that made sense when there were four employees and does not make sense now.

A properly designed 401(k) with profit sharing lets you direct a meaningful share of the plan’s contributions toward the owner, if the plan is designed for that outcome and the testing supports it. That design work is the part that gets skipped. Most plans get set up off a template and never touched again.

For owners with high, steady profit, there is another layer available on top of that, which is a cash balance plan.

The reason I like this for the right trades owners is that it does two things at once. It creates a substantial deduction against income taxed at the highest rate you will ever pay, and it moves that money out of the business and into retirement assets held for your benefit inside the plan.

The second part is the whole point. Most trade owners have almost everything they are worth tied up in the business. Equipment, trucks, receivables, the building. A retirement plan is one of the cleanest ways to systematically move wealth out of the operating business and into qualified retirement assets for your benefit, year after year, while generating a substantial tax deduction.

4. Buy the Truck Before Year End

Every contractor has heard this one. Buy the truck before year end. Buy the equipment. Write it off.

The deductions are real. Section 179 and depreciation are actual provisions in the tax code. The 2025 tax law expanded first-year depreciation, including making 100% bonus depreciation permanent for qualifying property. If you are buying equipment you were going to buy anyway, those deductions should absolutely be part of the tax-planning conversation.

The problem is what happens when the tail starts wagging the dog. Spending a dollar to save a fraction of a dollar is not a strategy. It is a purchase with a discount attached to it. If you do not need the excavator and you buy it because your CPA said you had a big year, you just spent real money to avoid a smaller amount of tax, and now you own a piece of equipment that has to earn its keep.

There is a second piece people miss. Some accelerated deductions come with ongoing business-use requirements. With Section 179 and certain listed property, for example, a later drop in business use can trigger recapture of part of the earlier deduction. So use these provisions intentionally, understand the rules, and do not let the deduction itself drive the purchase.

5. Your CPA Is Documenting History

This is the pattern that ties the other four together.

Your CPA is doing exactly what they were hired to do. They are filing an accurate return, keeping you compliant, and capturing the deductions in the records you gave them. That work matters. But by the time a return is being prepared, you are documenting history.

Many of the decisions that would have changed the outcome needed to happen months earlier. The entity question. The compensation number. Whether a plan got designed and adopted, and when. What got purchased, and in which year. Those are decisions with deadlines, and some of the most valuable options close before anybody sits down with last year’s numbers.

That is the actual reason profitable contractors overpay. Not because they are careless, and not because their CPA is bad at their job. There is a real difference between preparing a return and planning for one, and if nobody is doing the second thing, it does not get done.

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What I Would Actually Do First

If you own a trade or construction business with meaningful profit, start with the review nobody schedules. In the second or third quarter, while there is still runway, sit down and ask four things.

That last one is usually the answer.

The theme running through all five of these is the same. Nobody made a mistake. The business grew faster than the planning around it did, and nothing in the normal course of business forces anyone to go back and check. Your equipment gets serviced on a schedule. Your trucks get inspected. Your insurance gets reviewed every year because somebody sends you a renewal.

That is the job I do. I work with trade and construction owners in Cumming and across North Georgia to evaluate and coordinate the entity structure, owner compensation, retirement plan, and major purchases as one financial plan, alongside your CPA rather than around them. The tax reduction strategies page for Cumming, GA describes what that work looks like.

If you take one thing away, let it be the simplest one. The best time to change your tax bill is a long time before you see it.