As the new year begins, here are a few key tax and cash flow considerations that can potentially preserve your company’s balance sheet, conserve its cash position, and accomplish a contractor’s long-term goals.

Tax Projections
Contractors should take time to revisit and update tax projections and related cash requirements based on the most current financial data available to assess the projected tax liability of the company and its owners. Contractors that are aware of significant taxable income from 2015 should formulate a cash flow plan to assess any significant cash outflows for remaining federal tax liabilities in early 2016. In addition to cash flow planning, considering common tax reduction strategies (e.g., accelerated depreciation on equipment acquisitions and special treatment of home and residential projects) can help ensure that you accurately project the ultimate tax liability.

“Look-Back” Interest
Large contractors may receive a current tax benefit through a concept known as the “look-back” method.  The IRS requires large contractors to revisit contracts that were in progress in prior years to make sure they recognized income (and paid tax) as it was earned on a project. For example, if a project was 80% complete at December 31, 2014 and was projected to result in $100,000 of profit at completion, then $80,000 should have been included in taxable income at December 31, 2014. If the contractor completed the project in 2015, but only earned $70,000 of profit due to unforeseen costs, then the company would be entitled to interest related to the overpayment of taxes in 2014. It is important to note the calculation also works in reverse and could result in additional tax liabilities on under-reported income.