Contractors often ask us if they can buy our Chart Of Accounts with Cost of Goods Sold and import them into their QuickBooks Desktop file or their QuickBooks Online file. The answer is yes!
Direct Costs are tied to the jobs (field labor, material, and other cost items) Office material (pencils, paper, toner, etc. are overhead) Yes, an accountant could say these many pencils are used in the field, and that notepad is used in the truck.
The answer is the dividing line of what the DIRECT COSTS to the job and those are Cost of Goods Sold (COGS).
Confusion always comes about the material. A construction contractor may purchase material and resell it to their customer at cost. Thereby thinking it is a reimbursable expense. (Lose money when doing this).
Remember all invoices to the Customer (Retail, General Contractor, Spec Builder, Developer) is income. Washington State has a clear explanation. If the words are on the invoice, then the invoice is either taxable or non-taxable based on other factors. Every line item on a customer invoice is All INCOME.
Purchases for the material are Cost of Goods Sold or are expenses if you are short-cutting your accounting. I have seen financial statements that are backed out because they will reflect reimbursable income as a negative number and thereby show it as a deduction. (Net effect is double dipping on the expense side) The cause is the accounting software not correctly set up. We fix bad QuickBooks Setup For Construction Contractors.
New Construction Home Building is another area of confusion. In the mind of many construction contractors, a Spec home is any new house that is being built for resale. That is true; it is a New Construction House. The question is on the construction accounting side. For the Owner and Developer (who might be the General Contractor running the job) it is a Spec Home.
For the General Contractor who is building a New Construction Home for a Developer, it is NOT a Spec Home. Why it might seem the same as both are New Construction Houses. Question to be answered is "Who owns the house?" - It is a Spec House in the accounting system for THE OWNER.
If the General Contractor Does Not Own the house then from an accounting side for that specific General Contractor, the house is a Custom Home who has an owner who is not The General Contractor.
If the General Contractor, Developer who Owns the new House being built then it is a Spec House in the Accounting System. All costs roll up into WIP (Work-In-Process) and convert to COGS when the house is sold not before. Recognize expenses when the house sells. Otherwise, expenses one year; sale the next equals TAXES.
In Washington State, all Construction Contractors working for a Spec Builder need to collect sales tax on all services (labor and material) when billed from the General and Trade Construction Contractors.
In Washington State, all Construction Contractors working on a Custom Home, Residential or Commercial Projects, Large or Small Remodels, Handyman Projects can accept reseller permit from the General Contractor. Sales Tax is billed and collected from the Owner by the General Contractor.
In Washington State, Contractors need to collect sales tax on all retail project including Labor, Material, Other. Sales tax must be collected on every line item. Customer Discounts can be given for any reason.
One quick word about hiring subcontractors. Make sure they are licensed and bonded based on the rules of your state. Review and make sure you are not their only customer. As Construction Contractor, you Do Not Want for any Government Agency (State or Federal) to re-classify them as your employee. Government Agencies share names, and there are Payroll taxes for everyone.
Part of rules, a 1099 Contractor must work for more than one person or company. Get a signed W-9. Internal Revenue wants to have 1099’s issued for everyone who received over six hundred dollars in a single calendar year.
If you have employees, Use a payroll service that will electronically file Quarterly and Annual Returns. Many will also file the 1099’s. Keep your reporting simple and easy, this makes it accessible to prove you filed on time. Having an outside Construction Accountant makes meeting the rules as a contractor versus an employee easier.
Fast Easy Accounting does the bookkeeping, accounting, payroll and offers business coaching for small, brand new Construction Contractors who are General Contractors, Trade Contractors, and Handyman all across the USA including Alaska and Hawaii. Do the parts that only you can do; leave the rest to us.
You are never too small for us to help and we can help beginning with your first day in business.
Looking forward to being of assistance.
Please feel free to download all the Free Forms and Resources that you find useful for your business.
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About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 206-361-3950 or firstname.lastname@example.org
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