CPA Services for NJ Construction Companies & Contractors

Frequently Asked Questions

What is the best entity structure for a NJ contractor?

Most NJ contractors with net income above $50,000-$80,000 benefit from an S-Corp election, which reduces self-employment taxes by splitting income between W-2 wages (subject to FICA) and distributions (not subject to FICA). Below that threshold, a sole proprietorship or single-member LLC is simpler. The right answer depends on your specific income level and overhead.

Can I deduct tools and equipment immediately?

Yes. Under Section 179, you can deduct up to $2,560,000 of qualifying equipment in 2026. The OBBBA permanently restored 100% bonus depreciation for property acquired after January 19, 2025. Heavy vehicles over 6,000 lbs GVW have separate limits. Planning when to make equipment purchases can meaningfully shift taxable income between years.

What are the risks of misclassifying workers as subcontractors?

In NJ, the ABC test (stricter than the federal standard) presumes all workers are employees unless you can prove all three ABC prongs. Misclassification exposes you to back unemployment contributions, disability insurance payments, penalties up to $5,000 per worker, and potential criminal liability. The NJ DOL actively audits construction businesses.

How do I handle retainage on my tax return?

Retainage (a portion of contract payment withheld until project completion) is typically not taxable until it is earned under your accounting method. For cash-basis contractors, retainage is income when received. For accrual-basis contractors, retainage is income when earned (typically when the work is substantially complete and the right to receive is fixed).