Question

Construction Contractor accounts and tax mapping

2 replies
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I own a solar contracting company and am a little confused how to handle the following:

For payments to subcontractors, I use a COGS account named "subcontractors expense" so I can track job cost accurately to include any subcontractor payments for each job. It looks like the IRS does not consider subcontractor cost as COGS, since they have "contract labor" listed under Schedule C Part II Expenses line item 11. There is a "cost of labor" line item 37 in Part III COGS section, but examples seem to suggest that is for employees direct labor not subcontractors. I do have the ability to track employee labor and subcontractor expenses separately for each job, and would prefer to do that so I know accurately the profit per job. I also have some employee work that is not job specific, i.e. for sales, administrative, etc which I would not want to assign to a specific job. What accts and what tax mapping should I use for:

a) subcontractor costs for a specific job

b) employee labor for a specific job

c) employee labor for general work, not a specific job

A second question on acct and tax line mapping for construction/performance bonds I need to buy as well as contractor registration fee to do work in certain cities or counties. I sometimes do multiple jobs in one county that requires a bond and to pay a contractor registration fee, so it may not make sense to track per individual job. What acct should I use for bond costs and which tax line mapping? What accct should I use for registration fee and which tax line mapping?

I use Quickbooks Desktop 2020 Contractor Edition.

Thank you

QuickBooks Desktop

Rustler

Level 15

When you file taxes at year end, contractor payments are not COGS. On the tax form they are listed under the category of Non-Employee Compensation, so that is the expense account I use, it is up to you though.

Cost of labor is an issue to me. Payroll is an expense all the time so I just expense it and be done with it, whether the worker is working on a project or sweeping the floor, the same expense still exists.

Desktop tax line mapping is iffy in my opinion. rarely does QB desktop update the tax line mapping and I find it much easier to just print the P&L and transfer the numbers manually - your choice.

Registration fees are an expense, I would create an expense account for them and list them under Other expenses on the tax form. Same for bond expense.

S

solarkenAuthor

Thank you for your reply. In my business I think it is important to track labor by job, including both direct employee labor costs and subcontractors hired to help complete job. If not, job costing and profit analysis is impossible. While it may seem that payroll for direct employees is a constant expense, it may not be, since working on a roof-moounted solar array has much higher Workmans comp costs than working on a ground mounted array. And subcontractor labor can vary greatly with some jobs not requiring any and some requiring hundreds of hours of subcontract labor.

If I accurately track job costs and profit, I can possible use that data to focus on project types that bring the highest profit, and either avoid those that bring low profit, or increase the price charged for those.

Where it gets confusing is mapping over to tax forms. I agree with you, it is better to do it manually from P&L. I guess I will take the subcontract labor that I consider as COGS in QB acctg and move it to Part II Expenses contract labor on Sched C (Not COGS).

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