What accounting method(s) should a Contractor select for taxes?

Orlando J.

Hi,

It is so nice to have an expert to seek knowledge from especially when you can never get a hold of an IRS agent.

Your article on Taxation of Construction Contractors Tax Accounting Methods for Contractors was exactly what I was looking for.

I have a client that has work in progress. This is his first year in business so I won’t have to fill out the form 3115 change of accounting method.

He received a 1099 for the payment already but the job isn’t completed yet.

From your article I can see that I can enter other methods of accounting on my clients Schedule C. I would mark line F number 3) Other and enter Completed Contract Method.

Then I would enter the 1099 income received on line 1. And then make an adjustment on line 2 Returns and allowances to adjust for the portion of income that is work in progress.

Should I just notate in the notes Work in Progress 2012.

Please let me know if I am going in the right direction.

Then the following year when he receives the income should I then include the income on line 1 and notate Work In Progress from 2012.

Thank you,
Orlando J.,
The Man of Many Hats

The Tax Corner's Response:

Hi Orlando,

Thank you for your kind words. I appreciate them. I am pleased to learn that you found my article, Taxation of Construction Contractors: Tax Accounting Methods for Contractors, informative and helpful.

For methods of accounting, you may wish to indicate cash as the general method and completed contract as the long-term contract method.

The income to be reported on Schedule C would be cash receipts for work completed.

That’s it. Don’t get too fancy, even though I see you like wearing many hats…LOL!

Kindest regards,

The Tax Corner

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