A contractor can have a busy year and still lose money. The reason is almost always cost control by job: estimates that miss, change orders not billed, and materials charged to the wrong project. Bookkeeping built around jobs is how you find out in time to fix it. This article is about what to expect from a service. For the how-to side, see our contractor accounting and job costing guide.
What a contractor bookkeeping service should include
- Job costing: materials, labor, subcontractors, and equipment assigned to each project.
- Progress billing and retainage tracking on receivables and payables.
- Work-in-progress reporting comparing billed to earned revenue.
- Change order tracking so extra work gets billed.
- Subcontractor management: W-9s, insurance certificates, and 1099 reporting.
- Monthly reconciliations and job profitability reports.
Payroll and labor
Labor is usually the largest cost, and it is easy to misclassify. Employees need payroll with proper withholding, and workers should be classified correctly as employees or independent contractors based on the relationship, not a label. Workers' compensation insurance is often based on payroll and is subject to audit, so payroll records by job classification matter. If you use prevailing wage or certified payroll on certain projects, make sure your provider can support the reporting. See our payroll service.
Subcontractors and 1099 reporting
- 1Collect a W-9 before the first payment.
- 2Track payments to each subcontractor all year.
- 3Verify certificates of insurance and licenses.
- 4File Form 1099-NEC where required. Reporting thresholds have changed in recent legislation, so confirm the current rule.
- 5Keep lien waivers and contracts organized with the job file.
Revenue recognition and tax method
Long-term contracts can be reported under special methods, such as percentage-of-completion or completed-contract, depending on size and contract length. The method affects when income is taxed, so it should be decided with your tax preparer rather than defaulted by the bookkeeping software.
Sales tax and materials
Whether contractors charge sales tax, or pay it on materials, depends heavily on the state and the type of contract. Confirm your state's rules rather than assuming. Our sales tax compliance service can help.
Tax preparation that understands your books
Your tax return depends on accurate job and cost records. Bookkeeping and tax preparation work best from one team, so year-end does not require reworking the books. Read about what to do when books are behind if you are already behind.
Our bookkeeping service includes job-based reporting for contractors. To discuss your bookkeeping cleanup or setup, reach out with a summary of your jobs and payroll.
