Tax Accounting Methods for Contractors
Select the Appropriate Method for Maximum Deferral of Taxes
Have you selected the most appropriate tax accounting methods for your contracting company, maximizing the deferrral of income taxes? During these austere economic times, electing the right tax methods may make all the difference in the chances of your survival in these days of tight money.
Read the article, Tax Accounting Methods for Contractors: Select the Appropriate Method for Maximum Deferral of Taxes, and find out if your certified public accountant elected the correct tax methods for your construction company, given its contracts, conditions, and circumstances.
William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor
Accountants CPA Hartford, LLC
About William Brighenti
William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business.
Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission.
In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
Accountants CPA Hartford, LLC
Mr. Brighenti,
I am a CPA in Riverside Ca who also concentrates on construction accounting for the past five years. I found your website last night when I was searching for information on how to treat the C Corporation that exceeds the $5,000,000 gross receipts threshold. I was quite impressed with your website.
1> Could you be so kind as to briefly explain how to handle the tax return for a C Corp that has to change from the cash to the accrual because of the $5,000,000 gross receipts limitation which the company exceeded last year. The client is currently on the cash basis. Do I file a 3115? Also, the client has $982,000 in prior year receivables. Can the corporation take the 481 adjustment and spread this income over the 4 year period.
2> Can I change the method of accounting from cash to percent of completion and take advantage of the 481 adjustment, when the company is required to use the accrual basis this year.
3> The client is also under IRS examination due to a shareholder loan/dividend issue.
Dear G. Williams:
Thank you for your inquiry.
1. Of course, the $5M gross receipts limitation is based on an average over the last three years, including revenues in the current year. Consequently, assuming the aggregate average exceeds $5M , then generally the C Corporation can no longer use the cash method as its general method of accounting and would ordinarily convert to the accrual basis for its overall accounting method. Moreover, assuming the C Corp is a general contractor, it can elect the completed contract method for contracts longer in duration but not exceeding two years in length; this would ordinarily be preferable to using the percentage-of-completion because of the deferral of taxable income. After the aggregate average of revenues over three years exceeds $10M, then the percentage-of-completion method would be required.
2. In changing its method of accounting to accrual, the 481 adjustment meeting certain criteria could be used.
Hope this helps. If you need further assistance, please contact my office. I would be willing to provide a more detailed review of the circumstances of your client for a modest fee.
And thank you for visiting my website. I appreciate it.
Kindest regards,
William Brighenti, CPA
Accountants CPA Hartford, Connecticut, LLC