Accounting for Montana Construction Contractors

Every direct cost — materials, subs, direct labor, equipment rental — must be coded to a specific job.

Without job costing, you know overall profit but you don't know which jobs made or lost money. You can't fix what you can't see.

QuickBooks Classes or Xero Tracking Categories are the tools. Use one class per active job.

On long jobs, you bill in phases as work progresses (progress billings).

A WIP schedule tracks: total contract value, costs to date, estimated costs to complete, % complete, revenue earned, billed to date, and over/under billings.

Over-billed = billed more than earned (deferred revenue, a liability).

Under-billed = earned more than billed (asset — costs and estimated earnings in excess of billings).

Completed contract: recognize all revenue and cost when the job is done. Allowed for smaller contractors and shorter jobs. Simpler but distorts period profits.

Percentage of completion: recognize revenue and profit as costs are incurred (cost-to-cost method most common). Required for larger contractors and long jobs.

Cash basis for tax is available to most contractors under the small-business exception (average receipts under ~$30M).

GC withholds retention (typically 5–10%) on your progress billings until final completion.

You withhold retention from your subs the same way.

Retention receivable is a separate current asset from A/R; retention payable is a separate current liability from A/P.

Lien waivers accompany every progress payment — conditional (on payment clearing) or unconditional (already paid). Get these organized; they're required for closeout.

No job costing — one giant P&L with no visibility into job profitability.

Cash basis internally, then a WIP surprise at year-end shows the business isn't as profitable as bank statements suggest.

Retention buried in A/R, making cash flow look worse than it is on collection but better than it is on billings.

Change orders performed but not billed — huge under-billed exposure.

Contractor registration with Montana DOLI.

Workers' comp — construction rates are high; classify accurately.

1099 all subs paid $600+ in a calendar year with clean W-9s on file.

Sales tax not an issue for Montana in-state work; watch out for out-of-state jobs.

This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.