The third-quarter deadline for estimated tax payments is fast approaching on September 15, and now is a critical time for construction business owners to evaluate their 2025 performance, tax position, and cash flow strategy.
Here are a few items to consider as we approach the deadline:
Safe Harbor Rules
Making timely estimated tax payments is crucial for avoiding IRS underpayment interest, which currently stands at 7% annually, compounded daily. Effective planning can help you avoid these unnecessary costs.
The Safe Harbor Rules are designed to help companies avoid underpayment penalties by allowing you to base your estimated payments on:
- 100% of your 2024 tax liability (or 110% if your adjusted gross income exceeded $150,000), or
- 90% of your projected 2025 tax liability
If 2025 appears to be a stronger year, it may be advantageous to rely on the 2024 safe harbor. This approach helps ensure compliance, supports cash flow management, and allows time to reassess your income trajectory as the year progresses.
If you operate as an S corporation, partnership, or other pass-through entity, keep in mind that safe harbor requirements apply at the individual shareholder or partner level. Consider not only business income, but also income from outside businesses, investment gains or losses, and other personal tax items that may affect estimated payments.
If your income projections remain uncertain, consider basing your Q3 estimated payment on the 2024 safe harbor and reevaluate before Q4, adjusting your final payment as needed.
Impact of the One Big Beautiful Bill
The recently enacted One Big Beautiful Bill introduces significant tax provisions that could affect your 2025 taxable income and estimated payments. Key points include:
- R&D cost deductibility: Companies claiming the Research & Development credit and previously required to amortize costs can now fully expense these costs in 2025 or spread them between 2025 and 2026. This adjustment may substantially reduce taxable income and alter your estimated tax liability.
- Bonus depreciation and Section 179 expensing: The bill restores 100% bonus depreciation for qualified property such as machinery, equipment, and leasehold improvements. If your business is capital intensive and has made significant equipment purchases in 2025, these provisions could enable immediate expensing of those costs.
- Residential contract deferral opportunity: General contractors and subcontractors working on residential buildings with more than four dwelling units may now defer income recognition until project completion, instead of using the percentage-of-completion method. This can provide added flexibility for managing taxable income and smoothing cash flow.
Evaluating Your Business Performance
Alongside legislative changes, now is also a good time to review your company’s profitability and operational performance. Here are a few key items to consider:
- Are project backlogs larger compared to last year?
- Have margins improved due to pricing strategies or tighter cost controls?
- Are you experiencing stronger collections or accelerated billing cycles?
By evaluating these benchmarks, you’ll be better positioned to make informed decisions that strengthen your financial outlook for the remainder of the year.
We Are Here to Assist
If you need guidance reviewing your construction company’s mid-year projections, interpreting the impact of recent tax legislation, or planning your estimated tax payments, our team is ready to help you navigate these complexities with clarity and confidence.