Contractor tax
Greywood CPA plans and prepares taxes for general contractors, subcontractors and specialty trades. The biggest lever in construction tax is usually the accounting method for long-term contracts, which can shift taxable income between years. Equipment purchases, entity structure and multi-state filing come next.
Smaller contractors that meet the gross receipts test can generally use the completed-contract method or other simpler methods for qualifying contracts. Larger contractors generally must use percentage of completion for tax. Your book and tax methods can differ, and we reconcile both.
Last reviewed: November 2026
How you recognize income on contracts that span year-end affects how much tax you pay and when.
| Method | How it works | Who can use it |
|---|---|---|
| Percentage of completion | Income recognized as work progresses | Required for most long-term contracts of larger contractors |
| Completed contract | Income recognized when the contract is complete | Generally available under the small contractor exception for qualifying contracts |
| Cash or accrual (with or without retainage) | Income when received or earned, for shorter or exempt contracts | Smaller contractors meeting the gross receipts test |
Contractors whose average annual gross receipts for the prior three years are under an inflation-adjusted threshold (about $31 million for 2025) can generally use simpler methods for contracts expected to be completed within two years. Crossing the threshold usually means switching to percentage of completion for new contracts, so growing contractors should plan the change before it happens.
Trucks, heavy equipment and tools are often a contractor's largest deduction. Bonus depreciation and Section 179 expensing can let you deduct much of the cost in the year you buy, subject to the rules in effect for that year and your income. We plan the timing with you before year-end and keep book and tax depreciation reconciled.
Generally yes for qualifying contracts if your average annual gross receipts for the prior three years are under the inflation-adjusted small contractor threshold (about $31 million for 2025) and the contract is expected to be finished within two years.
New long-term contracts generally must use percentage of completion for tax. Planning the change ahead avoids a large one-year income spike.
Yes. Your financial statements follow ASC 606, while your tax return can use a different permitted method. We reconcile the two every year.
It can make sense when you need the equipment anyway. Bonus depreciation and Section 179 rules and your income level decide how much you can deduct, so plan before buying.
We quote one fixed fee in writing before any work starts, based on the returns, entities and states involved.
Tell us about your company. A senior CPA will send a fixed-fee proposal within 1–3 business days.