Thursday, June 9, 2011

Important Tax Changes for Roofing Contractors

The recent introduction of the American Job Builders Tax Reform Act of 2011 (H.R. 1993) will provide much-needed changes to tax accounting methods used by many small and medium-sized roofing contractors.

The current IRS code states that contractors are forbidden from using the Completed Contract Method (CCM) of accounting if the overall average annual gross receipts exceed $10 million (this threshold has not been adjusted for inflation since the rule was created in 1986). Instead, contractors are required to use the Percentage-of-Completion method (which does not always accurately reflect profits because you have to use annual job completion estimates). The American Job Builders Tax Reform Act increases that threshold to $40 million, and is indexed for inflation. Contractors will also no longer be subject to "look-back" calculations for regular and alternative minimum tax purposes.

The Completed Contract Method (CCM) better reflects taxable income, as it is based on accurate final results. Because typical contractors do not realize profits on contracts until contract completion, the CCM is the optimal method for matching contractor profits with tax liability. This new reform will help small and medium-sized roofing contractors avoid cash-flow problems as they grow their business and create new jobs.

The National Roofing Contractors Association is working with other construction trade associations to educate members of Congress regarding the benefits of the CCM, as well as the importance of lowering the threshold for eligibility.

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