Episode 176 of the Construction Accounting Podcast with George Ghazarian, CPA · 5 min 12 sec · Published 27 July 2026

Two contractors run the same jobs at the same revenue and the same paper profit. One of them writes a check to the IRS in April that is forty thousand dollars bigger.

The difference is how income gets recognized. Here is how your accounting method and your work in progress schedule drive both your tax bill and your bonding line.

What you’ll learn

  • How the wrong method pulls income forward into a bad year
  • Which residential projects can now use completed contract
  • Why your surety reads the WIP schedule before anything else
  • When the Section 179D energy deduction closes for new construction
  • What a rebuilt job-by-job WIP schedule actually changes

The Method Nobody Chose on Purpose

Take two contractors with the same revenue, the same jobs and the same profit on paper. One writes a check to the IRS in April. The other writes one that is forty thousand dollars bigger. The only difference is how their income gets recognized on the tax return.

That happens because when you started, a bookkeeper or a tax preparer picked whatever was easiest for them — usually cash basis, because it is simple. Simple is not the same as smart. For a contractor running long jobs, the wrong method pulls income forward into a year you cannot afford it, and you end up paying tax on money still sitting in a customer’s account.

Completed Contract Just Opened Up for Residential Over Four Units

There is a rule change almost nobody was told about. The new tax law expanded the exception for residential construction. Residential projects with more than four units can now use the completed-contract method, which means you defer recognizing income until the job is substantially done. You are not paying tax on a job that is not finished.

The timing matters. It applies to contracts entered in tax years starting after July of 2025, so for most contractors on a calendar year, that lands in 2026. If you build multifamily, townhomes or apartments and your CPA has not said one word about this, treat that as a red flag.

Your Surety Reads the WIP Before Anyone Else Does

Your work in progress schedule is not just a tax document. It is the single document your surety and your bank trust the most. When the WIP is clean — accurate costs, accurate percent complete, no jobs quietly hiding losses — your bonding line goes up and you get to bid bigger work.

When it is a mess, they assume the worst and they choke how much work you are allowed to take on. Same company, two very different futures, decided by a spreadsheet most owners never look at. A sloppy WIP does not only cost you in taxes. It caps how big you are allowed to grow.

Section 179D Closes for Construction Starting After June 30, 2026

There was an energy deduction, Section 179D, worth up to almost six dollars a square foot on efficient commercial buildings. Under the new law it is gone for any project that starts construction after June 30th of 2026. That window closed.

If you had a job in the ground before that date, there may still be money to go grab. If you did not, take the lesson: these deadlines do not wait for you to get around to tax planning.

Rebuild the WIP Job by Job

The fix starts with the real WIP, job by job — not the year-end guess. Real percent complete. Real costs to finish. Half the value of the exercise is finding the jobs that never made it onto the schedule at all.

From there, pick your method on purpose. Cash, accrual, percentage of completion, completed contract — model each one against your actual jobs and choose the one that legally keeps the most cash in your account. Then get the books on accrual with job-level costing, so every job tells you the truth while you can still do something about it.

Get Your CPA and Your Bonding Agent on the Same Numbers

The last step is making sure your CPA and your bonding agent are reading the same clean numbers, so your tax strategy and your growth plan finally pull in the same direction instead of against each other.

A general contractor doing about four million a year came in on cash basis with a WIP schedule that was a joke — half the jobs were not even on it. He thought he was profitable. Rebuilding the WIP and switching his method did two things: his tax bill dropped by a mid-five-figure number that first year, and his bonding line went up enough that he landed a job he could not have touched the year before. Same contractor, same crews, numbers finally built right. Before you close out the year, get a second set of eyes on your method and your WIP, because once the year closes a lot of these moves are gone for good.

The short version

  • Two identical contractors can owe forty thousand dollars apart on method alone
  • Residential projects with more than four units can now use the completed-contract method
  • That change applies to contracts entered in tax years starting after July of 2025
  • Section 179D is gone for projects starting construction after June 30, 2026
  • A clean WIP schedule raises the bonding line that caps how much work you can take
  • Accrual books with job-level costing let a job tell you the truth in time to act

Want this applied to your numbers?

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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.