Contractors - Cooke, Lavender, Massey & Co

Many unique regulations and accounting standards can make tax preparation and accounting a complicated process for construction contractors.

Cooke, Lavender, Massey & Company, P.C. offers accounting, attest, and tax preparation services to construction contractors in Christiansburg, Radford, Blacksburg, the New River Valley, and the surrounding region.

We are proud to have all types of contractor clients, including general contractors, commercial and residential contractors, home builders, remodelers, landscapers, plumbers, electricians, drywallers, painters, finish carpenters, heating and ductwork, masons, roofers, interior design consultants, home security, and other types of contractors.

We believe it is critical to provide the best resources and accounting tools to our clients. Our team of experts offer a variety of services for contractors, including:

Accounting
Bookkeeping
Payroll services
Income Tax Preparation
Audits, reviews, and compilations

Unique Accounting and Tax Challenges Faced by Contractors

There are a variety of complicated tax and accounting challenges that contractors must navigate. Our team can help you navigate those challenges.

Choosing an accounting method for your contractor business

The accounting profession has used the percentage-of-completion and completed-contract accounting methods for construction contractors for many years. However, those methods have been replaced. The new revenue recognition guidance found in FASB ASC 606, Revenue from Contracts With Customers, effective for construction contractors other than public business entities for annual reporting periods beginning after December 15, 2018, amends or supersedes virtually all existing revenue recognition accounting guidance. While the construction industry will no longer be required to follow specialized industry accounting guidance, the nature of this industry continues to make accounting for construction contract revenues and costs more difficult than many other industries.

Some flexibility remains for construction contract reporting for income tax purposes. Depending on average gross receipts and the type contractor, more advantageous accounting methods such as the completed-contract method, the cash method, the accrual method, etc. may be available for income tax reporting purposes.

Our experienced accountants can help you navigate these complex issues and make the correct choices for your business.

Obtaining all required licences

Construction and contractor licenses and permits show current and prospective clients that your company is qualified to handle their job and that you are in compliance with local building regulations.

Construction contractors are usually required to obtain building permits from local authorities before beginning new projects, and in some instances, may also need to be licensed in that jurisdiction.

Financial information is often a required part of license application or renewal forms. Our accountants can help you complete these required licensing applications and renewal forms.

Frequently Asked Questions

While our clients in the contracting industry ask many questions, here are four questions that we hear most often.

How should I track job profitablity?

As with any industry, tracking profitability as a valuable tool for any successful business. We encourage our clients to pay close attention to how their expenses are segregated and ensure each expense is recorded to the appropriate job. Tracking job revenue and costs accurately can help make valuable business decisions in real-time and after-the-fact. Without proper accounting procedures, these impactful decisions may be made with incorrect information or may be overlooked completely. We can help provide the guidance necessary for setting up proper accounting procedures to help you make informed business decisions.

Am I eligible for the Qualified Business Income deduction?

Many business owners may be eligible for a qualified business income (QBI) deduction (or Section 199A deduction). The QBI deduction allows certain taxpayers with certain levels of taxable income, among other circumstances, to benefit from a 20% deduction on the amount of Qualified Business Income from a domestic business. In general, a trade or business in the construction industry is not considered a specified service trade or business (SSTB) for purposes of qualifying for the QBI deduction. Other limitations for qualifying for the deduction may still apply and are dependent upon each taxpayer’s circumstances.

Do I need to pay my employees overtime?

There is no “one-size-fits-all” answer to this question. Each contracting company is unique, and some laws vary by state and circumstance. The Department of Labor provides specific guidelines to help businesses comply with the laws in each state.

Am I a real estate professional?

Many contractors also own rental real estate properties. A significant determination for anyone in this situation is determine whether or not the taxpayer should classify themselves as a “real estate professional”. This decision can have very significant tax implications. Rental real estate activities in which real estate professionals materially participate are required to be treated nonpassive activities for income tax purposes. As a result of this requirement, net rental losses from rental losses can be deducted against other nonpassive income (such as W-2 wages). The $25,000 special allowance limitation does not apply to real estate professionals. Several conditions must be met to make this classification. Our firm can help you make this determination and navigate the complex tax implications.

Common Mistakes

Here are three common accounting and tax-related mistakes contractors make that our team can help you avoid.

Not correctly tracking job costs

Unlike many businesses, contract costs for construction contractors must be recognized both in total in the general ledger accounts and individually for each contract/job. Amounts posted to general ledger control accounts (normally, expense accounts by major category) should agree in total to amounts posted to subsidiary ledgers for each contract/job. Failure to allocate each expense to the correct job will affect each job’s gross profit, which will, in turn, affect the contractor’s financial statements and tax returns.

Not properly accounting for contract labor and issuing 1099s

Most construction contractors hire independent contractors to help them complete their workload. Utilizing independent contractors allows any contractors significant flexibility and the ability to respond to job requirements and market demand quickly.

Treatment of short-term labor as independent contractors can provide significant savings. Depending on the state in which you operate, a true independent contractor may not be required to be paid overtime or have workers’ compensation coverage. Additionally, the company is not required to pay FICA taxes for these workers. This treatment can be very attractive.

However, many companies mis-classify workers who should be categorized as employees as independent contractors instead. Our experienced accountants can help you navigate these complex issues, choose the correct treatment for all of your workers, and prepare the annual 1099 forms required for payments made to independent contractors.

Not filing form 2290 (heavy highway vehicle use tax return)

Many construction companies and contractors are required to submit a Form 2290 tax return each year. If a taxable highway motor vehicle with gross weight of 55,000 pounds or more is registered in your Company’s name you may be required to File Form 2290. This requirement is easy to overlook. Our experienced accountants can provide guidance for determining if this form is required.