Year-End Tax Prep Checklist for Contractors

This is the foundation. If these reconciliations do not tie, nothing else in your books can be trusted.

• All bank accounts reconciled to December 31 statements, with zero unreconciled differences.
• All credit card accounts reconciled to December 31 statements.
• Petty cash counted and posted, and the balance in the books matches the physical count.
• Undeposited Funds account cleared to zero, with no dangling deposits sitting unposted.
• Owner draws, contributions, and distributions posted correctly, not sitting in a shareholder loan or a suspense account.
• All loan balances reconciled to lender year-end statements, with any variance noted.
• Retainage payable balance ties to the actual outstanding retainage owed on completed subcontracts.

Construction revenue recognition is where generalist bookkeepers make the most mistakes. WIP and retainage need specific treatment.

• Total sales in the books tie to the sum of invoices issued for the year.
• Customer deposits and deferred revenue checked, with deposits still owed reclassified from income to liability.
• Retainage receivable aged by job, with each amount verified against the current pay app.
• WIP schedule prepared showing contract value, cost incurred, percent complete, earned revenue, billings to date, and over and under billings per job.
• Bad debt write-offs documented with reasoning and dates.

Without job costing, your CPA cannot tell which jobs made money and which lost it. This is also where most contractors accidentally overstate expenses by double counting or misallocating.

• Job-level profit and loss prepared for every job active during the year, showing revenue, direct costs, and gross margin per job.
• Direct materials expenses tied to specific jobs, not lumped under a generic Materials account.
• Subcontractor payments coded to the correct job and cost code.
• Direct labor separated from indirect labor and office wages.
• Equipment costs and rentals allocated to the jobs that used them, where applicable.

Payroll mismatches are one of the top reasons the IRS opens a look at a construction return. Reconcile before you file.

• Q4 Form 941 filed, and the sum of all four quarterly 941s matches your year-to-date payroll totals.
• Form W-3 prepared, matching the sum of every W-2 issued.
• Workers compensation audit prep done: total wages by class code, ready for the carrier auditor.
• S-corp owner reasonable compensation checked against industry benchmarks, if applicable.
• Fringe benefits added to the W-2 where required, such as personal use of a company vehicle or over-2% shareholder health insurance.

Missing 1099-NECs generate IRS notices, penalties, and personal audits for the recipients. Get this right by January 31.

• List prepared of every non-corporate vendor paid 600 dollars or more by cash, check, or ACH during the year.
• Payments made by credit card or third-party processors such as PayPal, Venmo Business or Stripe excluded, because the issuer reports those on a 1099-K.
• W-9 on file for every 1099-eligible vendor, with missing W-9s requested before filing.
• 1099-NECs filed with the IRS and delivered to recipients by January 31.

This is where thousands of dollars in tax deductions get lost. A financed truck that was expensed instead of capitalised costs real money.

• Depreciation schedule updated with every current-year asset addition, including purchase date, cost, and method.
• Assets sold, scrapped, or traded during the year listed with disposal date and proceeds received.
• Financed asset purchases handled correctly: asset booked to the balance sheet, loan booked as a liability, monthly payment split between principal and interest.
• Section 179 and bonus depreciation elections considered for current-year additions.
• Personal-use portion of any business asset such as a vehicle, cell phone or computer documented for allocation.

Only the interest portion of a loan payment is deductible. Contractors regularly expense the full payment, which understates income and creates audit exposure.

• Amortization schedule obtained from the lender for every business loan.
• Interest expense pulled from the amortization schedules and reconciled to the interest booked in the profit and loss statement.
• Credit line year-end balance tied to the lender statement.
• Personal guarantees on business loans documented for the file.

These are the deductions your CPA cannot find if you do not document them. Every one needs contemporaneous records: keep a log during the year, not reconstructed at tax time.

• Mileage log for personal vehicles used for business, with date, destination, business purpose, and miles driven.
• Home office square footage documented, along with total home square footage, if you claim the home office deduction.
• Meals categorised correctly. Most business meals are 50 percent deductible, and specific categories such as employee events are 100 percent.
• Cell phone and internet business-use percentages documented.
• Continuing education, license renewals, association dues, and trade publications captured.
• Vehicle expenses documented, and a decision made between the actual expense method and the standard mileage rate. Only one can be used per vehicle.

Bundle these into a labelled folder. Digital PDFs are fine and scanned copies are fine. Screenshots are not.

• Prior year federal and state tax returns.
• All twelve monthly bank statements.
• All twelve monthly credit card statements.
• All loan statements plus current amortization schedules.
• Any IRS or state tax notices received during the year, opened or not.
• Payroll reports: all four quarterly 941s, the W-3, every W-2 issued, and state unemployment filings.
• 1099-NECs issued to vendors and any 1099s received from customers.
• Sales tax returns filed during the year, if applicable.
• Insurance policies: general liability, workers compensation, and commercial auto.
• Bonding company statements or surety documentation, if applicable.