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Who We Serve · Contractors

Tax and finance built around the WIP schedule.

General contractors, specialty trades, home builders and site contractors are taxed contract by contract, and the rules changed for contracts signed in 2026. Our Tax Advisory and CFO Advisory practices work from the same job-cost data, so the method you elect, the WIP schedule your surety reads and the estimates you pay all agree.

Schedule a Strategy Session Where the leverage is
  • General contractors
  • Specialty trade contractors
  • Home builders and remodelers
  • Multifamily builders
  • Site and civil contractors
  • Public-work subcontractors
  • $32M2026 average gross receipts ceiling for the §460(e) small-contractor exemption and the cash method (§448(c))1
  • Jan 1, 2026Residential contracts a calendar-year contractor signs from this date are exempt from percentage of completion2
  • 3 yearsCompletion window for §263A relief on non-home residential contracts, such as apartments (2 years for homes)3
  • $2,000Form 1099-NEC threshold for payments to subcontractors made after December 31, 20251

Figures verified October 23, 2026 · sources at the end of this page

The financial shape of the business

Contractors are taxed by the job.

Three features of construction finance drive most of the planning we do.

  1. 01

    Revenue follows the contract, not the invoice

    Long-term contracts are governed by §460, and the method you use — percentage of completion, completed contract or another exempt method — decides which year a job’s profit lands in. Billing schedules and taxable income rarely line up, and the gap compounds across a backlog.

  2. 02

    Cash sits in retainage and underbillings

    Retainage, front-loaded pay applications and change orders awaiting approval separate earned revenue from collected cash. A profitable year can still be tight on cash, and estimated tax payments have to be planned against both.

  3. 03

    Bonding and credit depend on the books

    Surety and bank underwriting rely on WIP schedules and financial statements prepared on a consistent basis. When a reviewed or audited statement is required, the work behind it — job costing, accruals, over/under billings — has to be done before year-end, not after.

Tax Advisory

Tax and payroll rules that move contractor cash.

What changed under P.L. 119-21 and the IRS guidance that followed, plus the long-standing rules that catch growing contractors.

  • Residential contracts leave percentage of completionFor contracts entered into in taxable years beginning after July 4, 2025, §460(e) exempts every residential construction contract — apartments and condominiums included, not just buildings with four or fewer units — from the percentage-of-completion method, regardless of your size. The 70/30 percentage-of-completion/capitalized-cost method for those contracts is repealed, and the exemption carries through to AMT under §56(a)(3). Rev. Proc. 2026-32 adds automatic change 275 on a cut-off basis, so existing jobs stay on their current method while new contracts move.2,3,4
  • Large residential jobs still face §263AThe exemption from percentage of completion doesn’t end cost capitalization. Unless you meet the §448(c) test ($32 million for 2026) and expect, at signing, to finish within two years — three years for a residential contract that isn’t a home construction contract — §263A applies to the contract’s costs. We test each new multifamily contract against that window when it’s signed, because that is when the estimate counts.3,1
  • The small-contractor exemption for commercial workOther construction contracts are exempt from §460’s percentage-of-completion rules when you expect completion within two years of the contract commencement date and meet the §448(c) gross receipts test for the year of signing. Gross receipts are aggregated across commonly controlled entities under §448(c)(2), so a sister equipment company or a second operating LLC can push you over. Contracts outside the exemption stay on percentage of completion, with look-back at completion.3,1,5
  • Look-back interest and the 10-percent electionEach completed percentage-of-completion contract is re-run with actual price and costs, and interest on the resulting over- or underpayment is computed on Form 8697. Contracts with a gross price at completion of no more than the lesser of $1 million or 1% of average annual gross receipts, and finished within two years, are exempt. Closely held pass-throughs — 50% or more owned by five or fewer persons — can’t use the simplified entity-level computation. The §460(b)(5) election defers income until 10% of estimated costs are incurred, for all contracts entered into in the election year and after.3,6
  • Equipment: 100% bonus without inflating contract incomeP.L. 119-21 restored 100% bonus depreciation for property acquired after January 19, 2025; a written binding contract signed earlier fixes the acquisition date. On percentage-of-completion contracts, §460(c)(6) measures completion as if bonus depreciation didn’t exist for property with a recovery period of seven years or less, so expensing a loader doesn’t pull contract revenue forward.2,3
  • Cash method, inventory and §263A relief share one testThe §448(c) test controls the cash method for C corporations and partnerships with a C corporation partner, the §471(c) small-business inventory options and the §263A(i) exemption. Tax shelters lose all three, and an LLC or S corporation that allocates more than 35% of its losses to limited partners or limited entrepreneurs is a syndicate — a tax shelter under §461(i)(3) and §1256(e)(3)(B). That issue tends to surface in a loss year with passive owners.5,7,8,9,10
  • §45L closes for homes sold after June 30, 2026Builders can still claim the new energy efficient home credit for qualifying homes acquired on or before June 30, 2026: $2,500 per Energy Star single-family home and $5,000 at the zero energy ready level, or $500 and $1,000 per multifamily unit — $2,500 and $5,000 when prevailing wage requirements are met. The credit follows the buyer’s acquisition date, not the construction start, and is claimed on Form 8908.11,12
  • Subcontractor 1099s and Davis-Bacon payrollPayments to subcontractors made after December 31, 2025 require Form 1099-NEC at $2,000, indexed after 2026, and the backup-withholding threshold follows. On federally funded construction contracts over $2,000, Davis-Bacon requires weekly payroll submissions — Optional Form WH-347 or an equivalent — with the prime contractor responsible for every subcontractor’s. Fringe benefit credit must be annualized over all hours worked, private work included, under 29 CFR 5.25(c).1,2,13,14,15

CFO Advisory

Run the company off the WIP schedule.

Our CFO Advisory work starts with job-level data you can close every month. These are the measures we build and review with you.

MetricWhat it tells youCadence
Over/under billings by jobThe gap between billings and earned revenue on each open job. Persistent overbillings can mask a margin problem; underbillings tie up cash and draw questions from a surety.Monthly · Per job
Gross profit fade and gainMovement in estimated margin from one WIP schedule to the next. It shows which jobs need attention before they close and which estimates hold up.Monthly · Per job
Backlog and backlog gross marginSigned, unearned contract value and the profit embedded in it. It sets the floor for next year’s revenue, overhead coverage and hiring.Monthly
Working capital and tangible net worthThe balance-sheet measures behind bonding capacity and credit-line conversations. We forecast them so a large bid doesn’t arrive before the capacity to carry it.Monthly · Quarterly
Retainage receivable and agingCash earned but held until completion or acceptance. Tracking it by job and by owner shows where closeout paperwork is stalling collections.Monthly
Labor cost to estimateActual labor hours and burdened cost against the estimate, by cost code. Labor variances show up early, and weekly visibility lets a project manager correct mid-job.Weekly · Per job
Equipment cost per hour and utilizationOwned-equipment cost — depreciation, interest, repairs, insurance — against hours charged to jobs. It tells you what to rent, what to sell and what your internal equipment rates should be.Quarterly
Days to bill and days to collectTime from work performed to pay application, and from pay application to cash. Shortening either is usually cheaper than a larger credit line.Monthly

Accounting & Compliance

What we run, and who we coordinate with.

We handle the books, payroll and filings that feed your tax return and your surety package. Attest work and sales tax filings stay with specialists, and we work alongside them.

Handled by our team

  • Job-cost bookkeeping and WIP schedules — closed monthly in QuickBooks with cost codes your estimators recognize
  • Contract method analysis and Form 3115 — including automatic change 275 for residential construction contracts
  • Look-back computations on Form 8697 — tracked by contract from signing to completion
  • Field and office payroll — including Davis-Bacon weekly reports on Optional Form WH-347 and fringe annualization
  • Form 1099-NEC and W-9 collection — a vendor onboarding process that captures TINs before the first payment
  • §45L claims on Form 8908 — documentation for homes closed by June 30, 2026
  • Estimated tax planning — quarterly projections built from the WIP schedule, not last year’s return

Coordinated with your specialists

  • Your audit or review firm — we prepare the trial balance, WIP schedule and reconciliations behind surety- or bank-required statements
  • Your surety agent and underwriter — interim WIP schedules and forecasts delivered on their timeline
  • A sales and use tax provider such as Avalara or TaxJar — we plan contract structure around the rules; they handle filings
  • Construction counsel — lien, payment-bond and contract disputes
  • Your bank — covenant calculations and borrowing-base support

What changed · What’s next

Dates that matter for contractors.

Effective dates and filing deadlines under P.L. 119-21 and current IRS guidance.

  1. P.L. 119-21 enacted

    Section 70430 extends the percentage-of-completion exemption to all residential construction contracts entered into in taxable years beginning after this date and repeals the 70/30 method for them.2

  2. New rules start for calendar-year contractors

    Residential construction contracts signed on or after this date qualify for the exemption, and the $2,000 Form 1099-NEC threshold applies to payments made from this date.2,1

  3. §45L closes

    The new energy efficient home credit doesn’t apply to homes acquired after this date. Homes closed from January through June 2026 are still claimed on 2026 returns.11

  4. Revised method-change procedures

    Rev. Proc. 2026-32’s automatic change procedures, including change 275 for residential construction contracts, apply to Forms 3115 filed after this date.4


  5. Ahead

    2026 Forms 1099-NEC due

    The January 31 deadline falls on a Sunday in 2027, so returns for 2026 subcontractor payments are due the next business day.13

The Beaconshire Method

How an engagement runs.

Four phases, one accountable team. Tax, CFO and accounting work move together, so a decision made in one discipline is already reflected in the other two.

  1. Phase 01

    Discovery

    We map your contract mix — residential versus commercial, expected durations, related entities that count toward the §448(c) test — and review how your current methods and WIP schedule were built.

  2. Phase 02

    Strategy

    We choose methods by contract class, model the effect of changing methods for 2026 contracts, and set equipment purchases, owner compensation and estimated payments against the backlog.

  3. Phase 03

    Implementation

    We file the Forms 3115, rebuild job costing and WIP in QuickBooks where needed, and set up payroll, 1099 and Davis-Bacon reporting so the data arrives clean.

  4. Phase 04

    Stewardship

    Monthly WIP close, quarterly projections, look-back tracking on completed jobs, and year-end packages for your surety and audit firm.

Run the numbers first

CalculatorBreak-Even & Target ProfitBreak-even revenue and units, revenue for a profit target, margin of safety and operating leverage. Calculator13-Week Cash Flow & RunwayWeek-by-week closing cash with payroll, estimated-tax dates and one-off items — the low point and runway. CalculatorProfit Margin, Markup & PricingPrice from cost and target margin, net out card fees and variable costs, and see what a discount really costs.

Where this work lives

Tax Advisory & Planning

Year-round planning, entity design and multi-year projections — scoped so the savings justify the fee.

Explore advisory →

Fractional CFO

Forecasts, KPI dashboards, lender and board reporting, and a monthly close review.

Explore fractional CFO →

Bookkeeping

Tax-ready books and cleanup — the foundation every strategy and forecast depends on.

Explore bookkeeping →

FAQ

Common questions.

Do we still have to use the percentage-of-completion method?

It depends on the contract. Residential construction contracts entered into in taxable years beginning after July 4, 2025 are exempt regardless of your size. Other construction contracts are exempt if you expect to finish within two years and your average annual gross receipts are $32 million or less for 2026. Contracts that meet neither test stay on percentage of completion, with look-back interest at completion.

We build apartments. What changed for us?

Apartment and condominium contracts now count as residential construction contracts, so contracts signed in taxable years beginning after July 4, 2025 no longer need the 70/30 percentage-of-completion/capitalized-cost method. §263A still applies unless you pass the gross receipts test and expect completion within three years. Existing contracts stay on their current method because the change is made on a cut-off basis.

Most of our subcontractors bill well over $2,000. Do we still need W-9s from the small ones?

Yes. The $2,000 threshold decides whether a Form 1099-NEC is required, but at the first payment you rarely know whether a sub will cross it during the year. Backup withholding also follows the same threshold when a payee hasn’t supplied a correct TIN, so we collect W-9s at onboarding.

Can you prepare the reviewed or audited statements our surety wants?

No. We don’t perform audits, reviews or compilations. We build the books, job costing, WIP schedule and reconciliations the statements rest on, and we work directly with your audit firm so fieldwork moves faster and adjustments are fewer.

Does 100% bonus depreciation on new equipment change our percentage-of-completion income?

Not for equipment with a recovery period of seven years or less. Under §460(c)(6), that property’s cost is counted toward completion as if bonus depreciation didn’t exist, so the deduction doesn’t pull contract revenue forward. The bonus deduction itself is still allowed for property acquired after January 19, 2025.

How does Davis-Bacon affect what we can credit for fringe benefits?

Fringe credit is generally annualized: divide the plan cost by all hours worked in the period, on private and covered work alike, to get the hourly credit. A contractor with a mix of public and private work can end up with less hourly credit than the plan’s nominal rate, and the difference has to be made up in cash or additional contributions. We build the annualization into payroll so the weekly reports and plan contributions agree.

Other industries we serve

Sources

  1. [1]Rev. Proc. 2025-32 (2026 inflation adjustments) — IRS
  2. [2]Public Law 119-21 (One Big Beautiful Bill Act), §§70301, 70430, 70433 — U.S. Government Publishing Office
  3. [3]26 U.S.C. §460 — Special rules for long-term contracts — Legal Information Institute, Cornell Law School
  4. [4]Rev. Proc. 2026-32 (automatic method changes for §§174/174A and residential construction contracts) — IRS
  5. [5]26 U.S.C. §448 — Limitation on use of cash method of accounting — Legal Information Institute, Cornell Law School
  6. [6]Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts — IRS
  7. [7]26 U.S.C. §461 — General rule for taxable year of deduction (tax shelter definition, §461(i)(3)) — Legal Information Institute, Cornell Law School
  8. [8]26 U.S.C. §1256 — Syndicate definition, §1256(e)(3)(B) — Legal Information Institute, Cornell Law School
  9. [9]26 U.S.C. §471 — General rule for inventories — Legal Information Institute, Cornell Law School
  10. [10]26 U.S.C. §263A — Capitalization and inclusion in inventory costs — Legal Information Institute, Cornell Law School
  11. [11]26 U.S.C. §45L — New energy efficient home credit — Legal Information Institute, Cornell Law School
  12. [12]Form 8908, Energy Efficient Home Credit — IRS
  13. [13]Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026) — IRS
  14. [14]29 CFR 5.5 — Contract provisions and related matters (Davis-Bacon payroll submissions) — eCFR
  15. [15]29 CFR 5.25 — Rate of contribution or cost for fringe benefits (annualization) — eCFR

Figures and deadlines verified October 23, 2026

Bring us your last two WIP schedules.

We’ll review your contract mix and current methods, show where the 2026 rules change your tax and cash picture, and scope the work so the potential tax savings and financial clarity justify our fees. If we don’t believe the math works in your favor, we’ll tell you before you engage.

Schedule Your Free Strategy Session