“ There ’ s a feature in the tax law that lets companies write off essentially the cost , with air quotes around it , associated with stock compensation dollar for dollar , exactly the same as if the company had written a check to those employees ,” Gardner said . “ But there ’ s obviously no direct cash expense associated with that .”
The collective $ 48.5 million in stock-based compensation expenses reported in 2020 by the contractors analyzed here included :
3 . R & D Tax Credit
Construction companies also employ what ’ s known as the research and development tax credit , which gives up to 12 % of expenditures in this area back to businesses on their taxes .
According to Cole Marr , research and development director at California accounting firm Sensiba San Filippo , construction related activities that can qualify include design improvements for LEED or energy-efficient projects , development of unique construction methods and processes , experimentation with new building materials or developing or improving construction equipment .
Among the construction companies analyzed , Comfort Systems USA , a mechanical , electrical and plumbing contractor , leveraged the tax credit for $ 26.1 million , while Tutor Perini reported $ 3 million in R & D tax credits in its 10-K . Great Lakes Dredge & Dock , Tetra Tech and Infrastructure and Energy Alternatives also took small credits in this area .
The credit is designed to incentivize firms to invest in exploring new products and techniques , with the objective of spurring innovation and , hence , economic growth .
“ In the government ’ s view , they are attempting to improve and make more efficient their process to move business and the economy forward , which is good for everybody ,” said Kahn .
But the R & D tax credit is often criticized for its complexity , which effectively limits its advantages to large companies that can hire an army of accountants to wade through it .
“ There are some things in the tax code that could be made more simple ,” said Garrett Watson , senior policy analyst at the Tax Foundation , a right-leaning think tank . “ The R & D tax credit is an example . It ’ s incredibly complicated , so a lot of smaller firms have a hard time taking it .”
4 . Loss carryforwards and carrybacks
Another tax break that can help lower what a firm owes the government is the net loss carryforward . That allows companies to use an excess past loss , when they owed little or nothing in taxes , in a future year when they make money and may owe more . Such losses can be carried forward indefinitely .
For example , Ron Ballschmiede , chief financial officer at The Woodlands , Texasbased Sterling Construction Co ., explained in an email how the firm applied losses from as long ago as 2011 to offset profits now in order to get its effective federal tax rate down to zero in 2020 , the second year in a row it did so .
“ Due to the net operating loss carryforwards , the company expects no cash payments for federal income taxes for 2020 and 2019 ,” the firm reported in its 10-K .
MasTec and Integrated Electrical Services ( IES Holdings ) also reported using the technique in 2020 .
14 DITCHMEN • JULY 2021