Why contractor books are different
A lot of trades businesses are profitable and still short on cash, and the owner cannot tell which jobs made money. That is not a work ethic problem. It is an accounting setup problem.
The usual culprits:
- No job costing. Materials and labor go into one big bucket, so every job looks the same
- Retainage. Money the customer is holding back sits outside the books, or is counted as income before it is collected
- Deposits and progress billing. Cash arrives months before the work is done, which makes a good month look great and the next one look terrible
- Equipment and vehicles financed, expensed and depreciated inconsistently
- Subcontractors paid without W-9s on file
Job costing and work in progress
Job costing means every material purchase, labor hour and sub invoice is tagged to the job it belongs to. Once that is in place, you can see gross margin by job and by job type, and you find out which work to chase and which to price higher.
For businesses with larger or longer jobs, a work in progress schedule compares what you have billed to how far along each job really is. It shows over billing and under billing before it turns into a cash crunch, and it is what bonding companies and lenders ask for.
We build both into the monthly close for trades clients on our outsourced accounting packages.
Subs, W-9s and 1099s
Every January the same thing happens. The owner sits down to issue 1099s, realizes there is no W-9 for four subs from last summer, and half of them do not answer the phone.
1099-NEC forms are due to the IRS and to the contractor by January 31, and penalties apply per form. For payments made in 2026 and later, a 1099-NEC is required once you pay a sub $2,000 or more in the year, up from $600. The fix is a rule, not a scramble: no W-9, no first payment.
Worker classification matters too. If you control how, when and where someone works, supply the tools and they work only for you, the IRS may see an employee, not a sub. Getting that wrong means back payroll taxes and penalties. We look at it before it becomes a problem.
Equipment, trucks and timing
Section 179 and bonus depreciation let you deduct equipment in the year you buy it, but only if it is placed in service by December 31. Ordered or paid for is not enough. It has to be in your possession and ready to use.
And a big deduction is not always the right move. If this year is slow and next year will be bigger, the deduction may be worth more later. That decision belongs in October, with a projection, not on December 28. It is a standard part of tax planning for our trades clients.
North Carolina does not follow federal bonus depreciation. On your NC return most of it is added back and deducted over the following years, so the state benefit arrives more slowly than the federal one.
North Carolina rules contractors run into
- Sales tax on real property contracts. In North Carolina, a contractor on a real property job generally pays sales tax on the materials it buys and does not charge sales tax to the customer on the contract
- Repair, maintenance and installation services can be taxable in North Carolina, and the line between a taxable repair and a nontaxable real property contract is not always obvious. The paperwork and the invoice wording matter
- General contractor licensing. Projects of $40,000 or more generally require a license from the NC Licensing Board for General Contractors
- Business personal property listing. Equipment and tools are listed with the county each January. Mecklenburg and Union County each run their own listing
Working jobs in South Carolina as well? That adds SC withholding, licensing and income tax filings. See NC and SC dual-state taxes.
Questions we get asked
What accounting method should a contractor use?
Most small contractors can use cash or accrual accounting, and smaller contractors are often exempt from percentage of completion for tax purposes on shorter contracts. Which one is best depends on your job length, billing pattern and whether a bank or bonding company needs accrual statements. We look at it as part of setting up your books.
Do I need to send 1099s to my subcontractors?
Generally yes, for subcontractors who are individuals, sole proprietors, partnerships or most LLCs, once you pay them $2,000 or more in a year. That threshold rose from $600 starting with payments made in 2026. Corporations generally do not get one, with some exceptions. Collect a W-9 before the first payment.
Can I deduct the full cost of a new truck or equipment this year?
Often, through Section 179 or bonus depreciation, as long as it is placed in service by December 31 and used in the business. North Carolina limits how much of that it allows in the first year. Whether you should take it all now depends on next year's income.
Do you work with contractors outside Charlotte?
Yes. Most of our trades clients are in the Charlotte area and Union County, but everything is virtual and we work with contractors in other states too.