Short answer: Before December 31, contractors should reconcile every account, put every cost on the right job, update the work-in-progress (WIP) report, track retainage, prepare 1099s for any subcontractor paid $2,000 or more, and make sure new equipment is ready to use. Then hand your CPA one organized package. Ten steps cover all of it, and the first filing deadline is February 1, 2027.
Your jobs look profitable. Your December 31 books might not say so yet. A few checks in the next eight weeks fix almost all of it.
Why Is Year-End Harder for Contractors?
A store sells something and the sale is done. A contractor’s work stretches across weeks or months. A job can start in October, bill in pieces, and finish in February.
So on December 31, you have jobs that are half done, work that hasn’t been invoiced, and money held back that hasn’t come in yet. If the books don’t show that clearly, your profit for the year can look higher or lower than it really is.
Our Example: Summit Build Co.
To keep the numbers real, we’ll follow one example through the post. Summit Build Co. is a made-up general contractor, used for illustration only. It has 8 employees, about $1.8 million in yearly revenue, and 6 jobs open on December 31.
What Should Contractors Do Before December 31?
Step 1: Reconcile Every Account and Cut Off the Year Cleanly
Start here, because every other step depends on it.
Pull your December 31 balance from each bank account, credit card, and loan. Compare it to what your books show. They should match to the dollar, after you account for checks that haven’t cleared. This is called a bank reconciliation.
Then make a clean cut-off for the year:
- What you’re owed. Send invoices for any work finished by December 31 that hasn’t been billed, and follow up on anything unpaid past 30 days.
- What you owe. Collect every vendor and subcontractor bill for work done through December 31, even if it arrives in January. The cost belongs in the year the work happened.
Some banks post December statements in early January, so set a reminder to download them on January 2.
Want the full routine? Our month-end close checklist and QuickBooks bank reconciliation guide walk through it step by step.
Step 2: Make Sure Every Cost Sits on a Job
Contractors don’t make money on average. You make money job by job.
Check that each material purchase, labor hour, subcontractor bill, equipment rental, and fuel receipt is tied to the job it belongs to. Anything sitting in a general “job expenses” bucket should be moved now, while you still remember what it was for.
Once costs are on the right jobs, run a profit-by-job report. It shows which jobs and job types made money, and it is the best input for pricing next year. Our job costing guide for contractors shows how to read it.
Step 3: Update Your WIP Report as of December 31
For every job still open on December 31, compare two numbers: how much of the job you’ve earned, and how much you’ve billed. That comparison is your work-in-progress (WIP) report. Our post on how the WIP report affects bonding capacity explains the math.
Here’s what year-end adds. Summit’s Job 14 is a $200,000 contract. Costs so far are $120,000 of an estimated $160,000, so the job is 75% done and Summit has earned $150,000. It has billed $130,000. That leaves $20,000 earned but not yet invoiced.
This matters for your taxes, too. Contractors who report income as work gets done will count that $20,000 as 2026 income even though no invoice has gone out. Contractors who qualify for a simpler method may not. Which one you use depends on your average yearly revenue and how long your jobs run, so ask your CPA which applies to you.
Step 4: Track Retainage on Both Sides
Retainage is the part of each invoice a customer holds back until the job is done. It is usually 5% to 10%.
That money is yours. You’ve earned it. You just can’t spend it yet.
Summit has 5 active jobs, each billed at $100,000 so far, with 10% held back:
5 jobs × $100,000 × 10% = $50,000 earned but not in the bank.
Check two lists at year-end:
- Retainage owed to you. What each customer is holding. Make sure it’s on your books as money you will collect.
- Retainage you owe. If you hold back money from your own subcontractors, that’s a bill you’ll pay later. It should be on your books too.
Step 5: Get Your 1099s Ready
If you paid subcontractors during the year, you may need to send each one a Form 1099-NEC. This form tells the IRS what you paid them.
Two things changed recently, and both help you:
- The reporting threshold went up. For payments made in 2026, you only file for subcontractors you paid $2,000 or more. It used to be $600.
- The due date is February 1, 2027. January 31 falls on a Sunday this year, so the deadline moves to the next business day. The IRS copy and the subcontractor’s copy are due the same day.
Here’s what it looks like for Summit:
| Subcontractor | Paid in 2026 | 1099-NEC needed? |
|---|---|---|
| Electrician | $14,500 | Yes |
| Drywall crew | $22,000 | Yes |
| Hauling service | $2,400 | Yes |
| Painter | $1,800 | No (under $2,000) |
That’s 3 forms instead of 4.
Make sure you have a signed Form W-9 on file for every subcontractor. It gives you their legal name and tax ID, and getting it in December is much easier than chasing it in January. Payments to corporations are generally not reported on a 1099-NEC, but there are exceptions, so check with your CPA on anyone you’re unsure about.
For the official rules, see the IRS guidance on Form 1099-NEC.
Step 6: Check Payroll and Worker Types
For your own crew, compare your payroll reports to your books. Total wages, payroll taxes, and benefits should match. Your W-2s are also due February 1, 2027.
While you’re there, look at who is set up as an employee and who is set up as a contractor. The IRS looks at how the work is done, not what the paperwork says. Our guide on W-2 vs 1099 worker classification covers what the IRS looks for.
Step 7: Review Equipment and Truck Purchases
The tax code lets you deduct the full cost of many equipment purchases in the year you start using them, instead of spreading the cost over several years. Two tools do this: Section 179 and bonus depreciation.
Here are the 2026 numbers, in plain terms:
- Section 179 lets you deduct up to $2,560,000 of equipment in 2026. That’s far above what most small contractors spend in a year.
- 100% bonus depreciation is now permanent for qualifying equipment bought after January 19, 2025.
- Heavy SUVs have a lower Section 179 cap of $32,000 for 2026.
The detail that trips people up is timing. The equipment has to be ready to use by December 31, not just ordered.
Example: Summit signs for a $35,000 skid steer on December 29. The dealer delivers it on January 6. That purchase belongs to 2027, not 2026.
Two more habits that help:
- Keep the invoice, the delivery date, and a vehicle mileage log.
- Don’t buy something just for the deduction. A deduction saves you a portion of the cost, not all of it. Buy what the business needs, then make sure the timing is right.
The IRS depreciation rules (Publication 946) have the details.
Step 8: Close Out Finished Jobs
Jobs that wrap up in December should be fully closed in your books, not left half open into the new year.
- Send the final invoice.
- Ask for the retainage release on completed jobs.
- Collect closeout paperwork your contract requires, such as lien waivers. Rules vary by state.
- Pay the retainage you owe your own subs on those jobs.
Example: two of Summit’s five jobs finish in December. That’s 2 × $10,000 = $20,000 of retainage ready to request now, instead of in March.
Step 9: Plan Your Q1 Cash and Estimated Taxes
Profit on paper and cash in the bank are different things for contractors.
Summit has about $70,000 of earned money that isn’t in the bank yet: the $50,000 of retainage plus the $20,000 earned but not billed. That’s a good problem to have, but it needs a plan, because the fourth-quarter estimated tax payment for most business owners is due January 15, 2027, and payroll goes out every Friday.
Look at January and February cash now. Which invoices will come in, which retainage you can request, and what you’ll owe. Our guides on how to calculate estimated taxes and why a strong sales month can leave you cash-poor by January can help you plan it.
What Does Your CPA Need From You? (Step 10)
Your CPA works faster when everything arrives together. Put these in one folder:
- Profit and loss statement and balance sheet for the full year
- Bank and credit card reconciliations for December
- WIP report as of December 31
- List of equipment and vehicles bought, with dates
- 1099 list and W-9s
- Payroll reports
- Loan statements showing the year-end balance
A package like this means fewer questions, fewer back-and-forth emails, and a return that’s ready sooner.
Which Year-End Dates Matter for Contractors?
| Date | What’s due |
|---|---|
| Dec 31, 2026 | Books cut-off. Equipment must be ready to use. |
| Jan 15, 2027 | Fourth-quarter estimated tax payment for most business owners |
| Feb 1, 2027 | 1099-NEC forms to subcontractors and the IRS. W-2s to employees and the SSA. |
| Mar 15, 2027 | S corporation and partnership tax returns |
| Apr 15, 2027 | Individual tax returns and sole proprietor returns |
Common Questions
Do I send a 1099 to every subcontractor?
No. Only to those you paid $2,000 or more in 2026 for services, and usually only if they’re not a corporation. Collect a W-9 from every sub up front so you have what you need.
What is a WIP report in simple terms?
It’s a report for jobs still open at year-end. It compares how much of each job you’ve earned with how much you’ve billed, so your books show the real picture of profit.
Can I still fix my books after December 31?
Yes. Your 2026 books can be corrected and finished after the year ends, before your tax return is filed. It’s better to start early, because the dates in January and March come quickly.
Do I need accrual accounting as a contractor?
It depends on your size and how long your jobs take. Many smaller contractors can use simpler methods for taxes, but larger ones, or those with long jobs, may have to report income as work is completed. Your CPA can confirm which applies to you.
Need Help Getting Your Books Ready by December 31?
A year-end close doesn’t have to be a scramble. When costs are on the right jobs, WIP is current, and your 1099s are set, your numbers show what your business really earned.
If your books aren’t where you’d like them to be, we can help. Our team works with contractors every day on job costing, retainage, WIP, and catching up months of records. See how our contractor bookkeeping works, then book a free consultation, and we’ll tell you straight where your books stand and what it would take to get them ready.
Crunch. Strategize. Deliver.
This post is for general information only and is not tax advice. Tax rules depend on your situation. Please consult a qualified tax professional about your business.