Is the Completed Contract Method Right for Your Jobs

Episode 166 of the Construction Accounting Podcast with George Ghazarian, CPA · 6 min 58 sec · Published 3 July 2026

Most contractors run cash basis because that is what they have always run. Nobody ever sat down and asked whether it matches the way the jobs actually work.

This is the decision framework: how contract length, cash flow and completion timing tell you whether the completed contract method would help your company or hand you a bigger problem later.

Start With How Long Your Jobs Actually Run

Under the completed contract method, income and expenses on a qualifying contract are generally deferred until the contract is substantially complete. Revenue, costs and profit all land in the year the work finishes. That is the whole mechanism, and it tells you immediately who it can help.

If most of your work wraps inside a few months and inside a single tax year, the method has very little to give you. There is no meaningful gap to defer across. If your contracts routinely start in one tax year and finish in the next, the question is worth real analysis.

Settle Eligibility Before Anything Else

Availability turns on a gross receipts test and on whether your work qualifies as a long-term construction contract. Those rules carry their own detail and the threshold gets adjusted, so this is a question to answer with your CPA against the current year’s figures rather than from memory or from what another contractor told you at a jobsite.

Above the threshold the rules become much more restrictive, and the percentage of completion method generally takes over. Under that approach income is recognized as work progresses: a job 40 percent complete recognizes roughly 40 percent of expected profit. It matches income to progress and it leaves far less room for deferral.

What the Deferral Is Actually Worth

Run the number instead of arguing about the concept. Say you sign a contract worth $3 million. The project starts in July 2026 and finishes in August 2027. Your expected profit is $600,000.

On cash basis you may collect substantial payments during 2026, and those receipts could create taxable income in 2026, before the project is complete. Under the completed contract method that profit may not become taxable until 2027. At a combined federal and state rate of 30 percent, that is potentially $180,000 of tax deferred into the future — $180,000 staying inside the business longer, funding payroll, funding equipment, funding growth.

Look at Where Cash Basis Distorts the Same Job

Cash basis is simple. You recognize income when you receive the cash and deduct expenses when you pay them. For a lot of smaller contractors that works fine. The problem starts when projects stretch across tax years.

Start a $2 million project in October and collect a $600,000 deposit before year-end with only 20 percent of the work completed, and that deposit may become taxable income immediately. Significant costs are still coming. Your profit on the job is not actually known yet. You are paying tax on cash timing rather than on project economics, and that is where contractors get frustrated.

Model Three to Five Years, Not One

The mistake that hurts contractors is looking at a single tax year. Deferral is not elimination. The income shows up eventually, and the only question that matters is what your tax picture looks like in the year it does.

Build the schedule out three to five years using your actual expected completion dates, then stress-test it. What happens if three large jobs finish in the same year? That is income bunching, and it compresses several years of deferred profit into one return. It is the most common way this method backfires on a contractor who only ran the first-year math.

Cash Flow and Tax Timing Are Two Different Plans

Contractors talk themselves into trouble here. There is cash in the bank, so it feels handled. But under a deferral method you may collect money for years before the tax bill arrives, and then several projects close and the liability lands at once. If that money has already gone into equipment or owner draws, the deferral did not solve anything. It moved the problem and made it bigger.

Depending on your entity structure, ownership situation and overall tax profile, deferral methods can also raise alternative tax considerations. That is one more reason this is not a decision to make on a friend’s recommendation.

The Decision, in Order

1. Confirm eligibility for the current year with your CPA
2. Measure your typical contract duration and how many jobs cross year-end
3. Model future taxable income across three to five years, not one
4. Evaluate cash flow separately from tax timing
5. Stress-test the year several large jobs finish together
6. Coordinate the choice with entity structure, compensation, equipment purchases and cost segregation

Choosing cash basis because that is what you have always done is not a decision. Switching methods purely to cut this year’s tax is not a decision either. Changing an accounting method is not something to do casually, and the right answer is simply the one that matches your project lengths, your growth plans and the rest of your tax strategy.

The short version

• Deferral is not elimination; the income arrives in the year jobs close
• Short jobs finishing inside one tax year get almost no benefit from deferral
• A $3 million job with $600,000 profit defers roughly $180,000 at a 30 percent rate
• Model three to five years of completion dates, not a single tax year
• Confirm eligibility for the current year with your CPA before changing methods
• Plan cash flow separately from tax timing under any deferral method

Related episodes

• Why Profitable Contractors Still Run Out of Cash
• How Long Contractors Must Keep Tax Records for the IRS

Browse the full Construction Accounting Podcast archive

This episode is general information about how these rules work, not advice for your situation. Tax law changes and the right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.