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Discussion Forum Index --> Basic Tax Questions --> Small contractor exemption
Discussion Forum Index --> Tax Questions --> Small contractor exemption
EL CID (talk|edits) said:
| 31 January 2008
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| Hi. I need some guidance here. A taxpayer is a small contractor of home construction contracts. He is a cash basis S-corporation using the completed contract method. Basically, if the contracts are not completed by year end, the gross profit to date is booked as a liability. Most contracts range from less than a year to a little more than a year. Annual sales are usually around 2 million. All contracts are estimated, at signing, to be completed within 2 years. However, there is one contract that has just gone over 2 years and is not complete as of 12/31/07. The profit on it is about $300,000 so far. Is it correct to report this as a liability, as in the past, even though the contract is over 2 years and not completed? Construction contract taxation is complex and hopefully, someone has some insight on this issue.
Thanks!
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Taxea (talk|edits) said:
| 31 January 2008
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| If his bookkeeping is accrual basis then he reports the income when he receives it. A/R is a liability taxea
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RoyDaleOne (talk|edits) said:
| 31 January 2008
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| Not a problem that the contract exceeded two years to complete.
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EL CID (talk|edits) said:
| 31 January 2008
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| Overall method is cash basis. Construction contract method is completed contract. Thanks!
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Kevinh5 (talk|edits) said:
| 31 January 2008
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| IRSfixer, you should have left it alone after asking about the trick question - it would have made us think that you were onto something that none of us had a clue about! LOL I think I will try that next time, especially if I have no clue what the question is about. Just to keep people on their toes.
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