"For far too long, construction contractors have been forced to pay income taxes on projects based on estimates rather than having the option of paying taxes when the contract is completed," said Robin Word, chairman of ABC's Tax Advisory Group and president of Word CPA Group in Jackson, Mississippi. "The definition of ‘small contractor' under this bill will enable more contractors to report contract income at the conclusion of their jobs.
"What is exciting is that this bill's provisions will enable contractors to retain capital in their businesses for a longer period of time thereby enabling both investment and potential opportunities for job growth," said Rich Shavell, CPA, a member of ABC's Tax Advisory Group and president of Shavell & Company, P.A. in Boca Raton, Florida.
Under current law, construction contractors cannot use the completed contract method (CCM) accounting method if average annual gross receipts exceed $10 million. Instead, contractors are required to use the percentage of completion method, or PCM, which does not accurately reflect results because of the required use of estimates.
The American Job Builders Tax Reform Act increases the threshold to $40 million and also indexes the threshold for inflation.
The bipartisan bill also provides relief from Alternative Minimum Tax (AMT). Since the bill allows for small construction contractors to utilize CCM, taxes on the gross profit can be deferred until the project is complete.