Seattle contractor bookkeeping: job records that make tax preparation easier

Give every job a record that survives the busy season

A job folder should make sense to someone who was not standing on site when the work happened. Start with a consistent identifier, property address, customer, contract date and a short description of the project. Use that identifier on the estimate, supplier bills, labor records and customer invoices. A crew member’s nickname for a job is rarely enough for a year-end reviewer.

A practical job index also tracks approved price changes, invoices issued, money received, amounts still outstanding and questions awaiting the owner. Keep the final version of an agreement without deleting the earlier signed documents. When a customer asks about a balance six months later, you should be able to explain how the number developed rather than reconstruct it from text messages.

• Job identifier, customer and actual site address.
• Original signed contract and approved change orders.
• Invoice list, payment references and outstanding balances.
• Supplier and subcontractor documents connected to the job.

Do not use one tax assumption for every kind of construction

Washington’s construction guidance separates custom construction from activities such as speculative building, public road work and certain government projects. In a typical custom prime-contracting arrangement, DOR describes receipts as retailing B&O income and generally subject to retail sales tax unless an exemption applies. That is not a rule to apply blindly to every project or every contractor role.

Before deciding a classification, document who hired the business, who owns the property, the contractor’s role, where the site is and what work is being performed. A Seattle mailing address is not necessarily the project location. If the job involves a special category, work outside Washington or unusual ownership facts, flag it for specific review instead of letting the invoicing template decide the tax answer.

• Washington DOR: Custom construction
• Washington DOR: Construction tax matrix

Separate job profitability from the tax classification

For management, compare the current contract value with the costs assigned to the job. Break costs into materials, employee labor, subcontractors and any other categories the owner can use to make decisions. Track the estimate and actual costs side by side. This helps identify whether a job changed because the scope expanded, material costs moved or the original estimate missed something.

Washington B&O does not generally turn a job’s subcontractor or material costs into ordinary deductions from gross receipts. DOR’s construction overview specifically distinguishes the gross-receipts system from net income. Keep a separate tax review rather than assuming the margin report is the B&O base. One report helps price the next job; another supports the applicable tax filing.

Include commitments as a management note when useful: an approved supplier order or subcontract may not yet appear as a paid bank transaction. Mark the status clearly so it is not mistaken for a posted expense or a tax deduction. An owner looking only at cash paid can underestimate what the job will still cost to finish.

• Washington DOR: Construction overview

Make change orders visible before they disappear into revenue

Change orders are often where the record trail breaks. Use a short log with the request date, description, amount, approval evidence, invoice reference and collection status. Keep proposed, approved and rejected changes visibly separate. A verbal expectation of extra payment should not look identical to a signed increase when someone reviews the contract history.

Each month, compare the contract log with invoices and customer receipts. A payment can cover more than one invoice, and a customer may withhold an amount while discussing a defect or scope dispute. Record that explanation separately. Ask the preparer to review how deposits, progress billings, retainage and disputed balances fit the business’s accounting and tax method; the collection status alone does not settle the treatment.

Trace a customer advance through the next invoice

Keep a customer-balance schedule beside the change-order log. Link each amount to its contract, approval, invoice or payment reference. Show approved scope, work billed, prior receipts, advances applied and the remaining billed balance separately. Applying an earlier receipt to an invoice is not another bank deposit.

Consider a fictional private job with US$12,000 of original scope and a US$1,500 approved extra: US$13,500 approved in total. A further US$700 proposal is still awaiting approval and stays outside that total. Assume cumulative billing of US$9,000 consists of an earlier US$5,000 invoice, already paid, and US$4,000 of work on the current invoice.

The customer also paid a US$3,000 advance earlier. Under the agreed billing arrangement, the current invoice applies that receipt against its US$4,000 charge, leaving US$1,000 due. A new US$600 payment reduces the billed customer balance to US$400. The other US$4,500 of approved scope has not been billed; keep it separate from that receivable. Cross-reference the advance’s original receipt so it is not counted twice.

Keep an approved invoice credit, a cash refund and a supplier credit as separate events, cross-referenced when related. An invoice credit reduces the customer bill; a refund returns money. Link any refund settling that credit instead of reducing the bill twice. A supplier’s US$200 credit belongs with the purchase and supplier balance and does not automatically change the customer’s price. Document any separate customer adjustment instead of netting everything into one unexplained total.

These before-tax figures exclude customer credits and refunds, retainage, fees, disputes and other jobs. For actual custom-construction billing, retain the separately stated sales-tax evidence described by DOR. Ask the preparer how the contract terms and applicable accounting rules affect advance payments, including any relevant special contract method. An advance-tracking balance alone does not establish the income-recognition date.

Download the contractor job balance record (.txt)

• Washington DOR: Custom construction
• IRS: Recordkeeping
• IRS: What kind of records should I keep?
• IRS: Publication 538, Accounting Periods and Methods

Connect materials and subcontractors with the right evidence

A reseller permit is not permission to buy everything tax-free. DOR distinguishes eligible resale purchases from tools, equipment and other items the contractor consumes. It also explains the documentation needed when subcontractor services are purchased for resale. Keep the actual permit or approved evidence and the related transaction trail; a supplier’s name in the bank feed does not establish eligibility.

A useful purchase review asks what was bought, which project used it, whether it became part of the completed improvement and whether sales tax was charged. Flag an unclear purchase for review rather than changing it to tax-exempt to make the job margin look better. For equipment, keep the purchase agreement and financing details together so the cost, liability and payment history can be understood.

For each subcontractor, maintain a practical onboarding file with the signed agreement, invoices, payment details and relevant permit documentation. Keep tax-identification information in a secure system with limited access. Do not treat having a W-9 or issuing an information form as proof that the worker is correctly classified. The IRS looks at the actual relationship and degree of control; state tests can require separate review.

• Washington DOR: Reseller permits for contractors
• IRS: Independent contractor or employee?

Use a short weekly routine and a deeper monthly review

Weekly, collect job receipts, link bills to job identifiers and note missing approvals. Review unpaid customer invoices before the reason for a delay becomes hard to remember. Give one person responsibility for resolving unmatched purchases. A photograph of a receipt is useful only if the image is readable and someone can identify the relevant job.

Monthly, reconcile bank and card accounts, compare the job index with the ledger, check major supplier balances and review jobs with unexpectedly small or negative margins. Save a questions list for the owner. Resolve one explanation once, then attach it to the transaction so the same issue does not return during every review.

Before year-end, prepare a schedule of open jobs, outstanding invoices, customer advances, unpaid suppliers and recently acquired equipment for the preparer. These schedules are review tools, not an instruction that every business must use one accounting method. Ask how the chosen method handles those balances and preserve the explanation.

• Weekly: receipts, job coding, missing approvals and overdue customer follow-up.
• Monthly: account reconciliation, job-margin review and unresolved-item decisions.
• Year-end: open jobs, balances, equipment and tax-document handoff.

Ask for an engagement that covers the actual construction work

Tell a prospective preparer whether you are a prime contractor, a subcontractor, a remodeler, a speculative builder or a mix. Provide project locations and explain any government work. Ask which federal, Washington and city filings are included, who reviews sales-tax treatment and whether the books require catch-up work.

Aldro’s advertised US$399 business tax filing and optional US$20 per month bookkeeping should be matched to a written scope. Construction records with unresolved classifications, incomplete jobs or prior-period errors may need a separate review; the headline price should not be read as a promise that every construction-related filing is included.