Construction

Article Dean Dorton

Construction companies face unique financial complexities that make audits both essential and challenging. From job costing to revenue recognition, even well-run firms can face audit findings that affect bonding, financing, and compliance. Understanding the most common issues and how to prevent them can help contractors remain audit-ready and financially strong.

1. Inaccurate Work-in-Progress (WIP) Schedules 
WIP schedules are critical for tracking project profitability and revenue recognition. Common errors include outdated cost estimates, unapproved change orders, and inconsistent application of percentage-of-completion methods. These mistakes can distort financial results and mislead stakeholders. To avoid this, ensure regular updates, involve project managers in forecasting, and implement standardized WIP review procedures. 

2. Improper Revenue Recognition 
Revenue recognition under generally accepted accounting principles (GAAP), requires careful alignment between contract terms and accounting treatment. Auditors often find inconsistencies in how revenue is recognized across projects or misclassification of contract modifications. Contractors should document performance obligations clearly and maintain consistent policies for recognizing revenue based on progress and milestones. 

3. Weak Internal Controls 
Construction firms—especially growing ones—may lack segregation of duties or formal approval processes. This can lead to errors or even fraud. Strengthening internal controls through documented procedures, role-based access, and periodic reviews can reduce risk and improve audit outcomes. 

4. Inadequate Documentation 
Missing or incomplete documentation—such as subcontractor agreements, change orders, or timecards—can raise red flags during an audit. A centralized document management system and regular internal reviews can help ensure records are complete and accessible. 

5. Misclassified Costs 
Auditors frequently identify costs that are incorrectly allocated between jobs, overhead, or general expenses. This affects job profitability and financial reporting. Training accounting staff and using construction-specific accounting software can improve accuracy. 

Avoiding these common audit findings starts with proactive planning, strong internal processes, and industry-specific expertise. Regular internal reviews, collaboration between accounting and operations, and guidance from a CPA firm familiar with construction can make a significant difference. 

Want to strengthen your audit readiness and reduce risk? Contact the construction assurance team at Dean Dorton to learn how our tailored audit services can help you stay compliant, improve financial reporting, and build trust with lenders, bonding agents, and stakeholders. 


Article Dean Dorton Admin

As the 2026 filing season approaches, construction companies nationwide face a tax landscape that is both generous in deductions and more complex. Expanded depreciation rules, new accounting flexibility and long-term certainty for pass-through incentives mean smart planning now can improve cash flow and significantly reduce taxable income.   

Here are the top three tax strategies construction business owners should prioritize this filing season. 

1. Maximize Depreciation and Equipment Expensing 

Construction is a capital-intensive business, and the federal tax code increasingly reflects that reality.  

Why It Matters 

The One Big Beautiful Bill Act (OBBBA) permanently reinstated 100% bonus depreciation for qualifying assets placed in service after January 19, 2025. This allows companies to fully expense heavy equipment, vehicles, tools, and more in the year they’re put into use — instead of over many years. 

At the same time, the Section 179 deduction cap has been increased (e.g., up to $2.5 million, with thresholds beginning to phase out at $4 million in 2025 and indexed for inflation in 2026). This expanded threshold gives many construction firms greater flexibility to expense qualifying purchases immediately.  

Practical Tips 

  • Time purchases carefully: Only assets placed in service by year-end qualify for immediate expensing. Plan deliveries, install schedules, and ready-for-use timing accordingly.  
  • Layer Section 179 and bonus depreciation: Use Section 179 to target specific high-priority assets, then apply bonus depreciation to remaining purchases. This approach is especially effective for large trucks, cranes and heavy machinery.  
  • Don’t overlook technology: Certain software, project management tools and digital platforms may qualify for expensing when properly classified. These deductions not only cut your taxable income but also improve cash flow — money you can reinvest into wages, materials, or expansion. 

2. Leverage Specialized Credits and Accounting Flexibility 

Beyond basic depreciation, construction companies can tap into several targeted tax incentives and accounting elections that reduce liability. 

Key Opportunities 

  • Qualified Business Income (QBI) Deduction: Pass-through companies (LLCs, S corps, partnerships) can deduct up to 20% of qualified business income — and this deduction is now made permanent.  
  • Research & Development Credits: Yes, even construction firms can qualify if they innovate — for example, by developing more efficient building processes, materials, or safety systems. These credits directly reduce tax liability dollar-for-dollar.  
  • Energy-Efficient Building Incentives: Deductions like IRC §179D reward energy-efficient design and sustainable upgrades — but many of these incentives are tightening or set to sunset mid-2026, so acting now is crucial.  
  • Revenue Recognition Choices: Construction accounting methods — such as the completed-contract method versus the percentage-of-completion method — can materially affect when income is recognized and taxes owed. Recent law changes give broader flexibility, especially for residential and multi-unit projects. 

Actionable Steps 

  • Work with a CPA who understands construction: Many tax credits and methods require specific documentation and elections. A specialist helps ensure you capture all eligible benefits.  
  • Evaluate contracts annually: Large projects spanning multiple years can benefit from strategic method elections that defer income or accelerate deductions.  
  • Year-Round Planning: Estimated Taxes and Timing of Income 

3. Being proactive about taxes throughout the year — not just at filing time — can yield major advantages. 

Why It’s Critical 

Construction revenue and expenses often don’t align neatly with calendar years. Seasonal revenues, retainage, project delays, and subcontractor timing can create peaks and valleys that complicate quarterly estimations. Improving how and when you recognize income or deductions can significantly reduce year-end surprises and penalties.  

Strategies That Work 

  • Optimize Estimated Tax Payments: Avoid underpayment penalties and preserve cash flow by forecasting profits mid-year and aligning estimated payments with expected liabilities.  
  • Accelerate or Defer Income/Expenses: If you use cash accounting, deferring invoices until January can delay tax liability, while accelerating deductible expenses into the current year can increase deductions. Always balance with cash flow needs.  
  • Maintain pristine documentation: Timely and detailed bookkeeping — especially job cost tracking — not only simplifies tax preparation but supports every deduction and credit you claim.  

Final Thoughts 

The 2026 filing season isn’t just a deadline — it’s an opportunity. With permanent enhancements to depreciation, expanded deduction thresholds, and renewed incentives like the QBI deduction, construction companies have unprecedented tools to shape their tax outcomes. But these opportunities work best when paired with planning, expert advice and rigorous documentation. 

Start conversations with your tax advisor now — not in March — so your 2025 books are positioned to deliver the best possible results when you file in 2026.  

Contact your Dean Dorton advisor to discuss how these strategies may apply to your construction business and to begin proactive tax planning for the 2026 filing season.

Article Autumn Hines

For several years, it’s felt like the economy has been teetering on a cliff. Are we headed for a deep recession or a period of sustained economic growth? One can point to various economic indicators in today’s confusing economic landscape and get mixed signals. In these uncertain times, it’s more important now than ever to shore up your business’ accounting functions. With accurate financial reporting and forecasting, your company will be better prepared to face whatever macroeconomic conditions lie ahead. The construction industry is infamously cyclical and often considered a leading economic indicator. In fact, many economists point to building permits, construction spending, and architectural billings as a sign of what’s to come. This means there’s not much warning when things go south in the industry. With that said, your business must have access to timely and accurate financial statements for quick decision-making. Our outsourced accounting team can help.  

With Dean Dorton’s Accounting and Financial Outsourcing (AFO) Construction team, you get industry experience at a fraction of the cost. Our construction team has industry experience in corporate accounting, project management, estimating, and assurance services. With our AFO construction team, you get an accountant and a trusted partner who can help guide business decisions. Our services can be tailored to your specific needs.  

Common Service Offerings

Client Assessments

By diving into the details, we can assess your current accounting processes and recommend solutions for more accurate and timely financial reporting and strengthened internal controls. By taking an extensible approach to serving clients, we have a good pulse on best reporting practices across the industry. In a matter of weeks, you can be well on your way to more streamlined and accurate financial reporting for your business. 

Outsourced Transactional Accounting

We can act as a true back-office support system, assisting with daily functions such as accounts payable and general ledger reporting. With our back-office support, you can reduce your business’ accounting overheads while putting your mind at ease with continuity of service. You’ll no longer own the headache of employee turnover and lost knowledge; allow our team to plan for that. 

Month-End Support

We can provide controller-level review and insight into the financials with close assistance at the end of the month and financial statement preparation. With our high-level review throughout the year, surprises can be avoided, and your accounting function can become more strategic and less compliance-driven. 

Cash Flow Projections

Cash management is critical in the construction industry. Our team is equipped to help forecast cash inflows and outflows for managing the business. 

Ad Hoc Projects

Our services are tailored to your individual needs. With our diverse industry experience, we can offer insights into many business functions. We can apply our insights to prepare WIP schedules, analyze indirect cost allocation to open contracts, improve interdepartmental communication flow, and more. 

CFO Services and a Holistic Approach

Our CFO services provide strategic financial leadership to help drive business growth and profitability. By integrating our CFO expertise with our broader service offerings—including AFO, tax planning, and IT consulting—we provide a holistic approach to business success. 

In the age of labor shortages, high inflation, increased borrowing costs, and tightened bank credit, everyone in the industry must refine their accounting processes for more informed decision-making. Hiring an outsourced controller/CFO is a great option.

Dean Dorton is one of the Top 50 Construction Accounting Firms™, as named by Construction Executive. Please contact Dean Dorton’s construction team if you would like to learn more about our AFO offerings and any other service offerings we provide our construction clients.

Article Autumn Hines

One of the greatest financial tools for a contractor is a Work-in-Progress (WIP) schedule. If you’re unfamiliar with it, a WIP schedule tracks the financial performance of ongoing projects using the percentage-of-completion method for recording revenue. It can be used to track job progress and profitability, over and under-billings, contract values, change orders, estimated costs to complete, and even backlog. That’s quite a bit of insight gained from one report! 

In my experience preparing and analyzing WIP schedules across the industry, I’ve found some patterns of common mistakes. Thankfully, Dean Dorton’s Accounting & Financial Outsourcing (AFO) Construction team can provide resources for navigating the complexity of WIP schedules. Below is a summary of the mistakes I commonly see. 

Treating the WIP Schedule as a Compliance Task 

Too many contractors view the WIP schedule as a compliance tool, just another hoop to jump through at year-end for my CPA, surety, or bank. While it’s true that you will need a WIP schedule to comply with ASC 606 under GAAP, a WIP schedule is so much more than a compliance hurdle to jump through. An accurate WIP schedule can provide deep insight into job profitability, project cash flow, and historical data for project bidding. Consider the WIP schedule as another tool in your toolbox. Rely on it to make educated cost decisions and to hold team members accountable for project performance. 

It’s worth mentioning that an accurate WIP schedule doesn’t come easy. It takes work to implement, maintain, and review. Invest the time to prepare the schedule. Dean Dorton’s AFO Construction team can lighten the load to implement, prepare, and analyze this report for your business’ success. 

Using Inaccurate or Outdated Cost Budgets

Under the percentage-of-completion method, the estimated cost budget drives the entire calculation for recognizing revenue. If the budget is wrong, so will the rest of the schedule. Be sure to update cost budgets frequently. The accounting team should seek direct input from the project manager to better understand where job costs will land at project completion. The best practice is to schedule periodic meetings for the accountant and project manager to review this report at the individual project level. 

Improper Change Order Management

Incorrectly reporting change orders on the WIP schedule can cause material swings and errors in job cost reporting. First, you must know when a change order amount should be added to the contract value. Does the change order need to be signed and approved or reasonably recoverable? Our team can help navigate this complexity. 

Another common mistake is adding the change order to the contract amount but not adjusting the project’s cost budget. Be sure to adjust both. While this may appear to be an obvious mistake to avoid, it happens a lot. 

Frequency in WIP Schedule Preparation

Not all contractors are the same; the frequency with which you prepare a WIP schedule will differ depending on your size and complexity. I usually recommend preparing and updating a WIP schedule as part of the monthly accounting close cycle. In some cases, this may not be feasible or time-worthy. At a minimum, I would expect to see a WIP schedule prepared quarterly so that surprises at year-end are minimized.  

In determining the frequency of WIP schedule preparation, be sure to consider the project duration of your backlog. You’ll want to prepare a WIP schedule to measure results as the project progresses and frequently enough to allow time to make course corrections when necessary.  

Not Reconciling the WIP Schedule to the General Ledger

To build trust in your WIP schedule, it’s critical to reconcile both revenue and cost to your general ledger. With a proper tie-out, users can more comfortably rely on the WIP schedule for project decision-making. Reconciliation can be simplified using a clean Chart of Accounts structure and a detailed work breakdown structure at the project level. Many ERP systems offer job costing modules that can simplify the process of tracking job costs. Be sure to leverage your technology to its utmost potential. 

Focusing Solely on Profitability and Not Project Cashflow

The WIP schedule not only reports job profitability, but it can also be a tool to track cash flow at the project level. All contractors will want to analyze the underbillings and overbillings on their contracts, along with open accounts receivable and accounts payable at the project level. Underbillings result when the revenue earned through the percentage-of-completion method is greater than billings to date. Net underbillings mean work has been performed but not billed, which would cause concern and deserve deeper analysis. No contractor wants to act as a lender to the project owner. On the other hand, overbilling can occur when you’ve billed for more than the revenue recognized using the percentage-of-completion method. Being overbilled is advantageous because it acts as a way for the project owner to finance the project rather than the client. In fact, frontloading the project with higher profit recognition in the early phases of the job is common for this exact reason, as it provides the contractor with more working capital. However, contractors should ensure they are collecting cash on their overbilling promptly. 

As you can see, managing WIP is a nuanced topic. If you feel a bit overwhelmed after reading the list above, that’s okay! With hands-on construction industry experience, our team can provide customized assistance that meets your company’s specific needs. We have the knowledge to implement, prepare, and analyze WIP schedules and act as a trusted advisor to your business.

Dean Dorton is one of the Top 50 Construction Accounting Firms™, as named by Construction Executive. Please contact Dean Dorton’s construction team if you would like to learn more about our AFO offerings and any other service offerings we provide our construction clients.

Article Dean Dorton

Why You Need Construction-Specific Software

Every construction company on earth, from small contractors to mega developers, uses accounting software. What’s surprising is how few use the right software. Many have something less-than-optimal in place. And for some, the software hurts accounting as much as it helps.

That leads to an important question: does your construction company have the right accounting software in place? The answer is complicated. Ultimately, it boils down to this: if you don’t have construction-specific accounting software, think about making a change.

Why Horizontal Solutions Are Never Adequate

Horizontal accounting software strives to be a Swiss Army knife for financial management. It packs a bunch of basic tools into one package in order to meet the most popular accounting requirements. QuickBooks is the most common example, but there are many others.

All-in-one accounting solutions are great for companies getting off the ground. Not only do they offer essential accounting features at an accessible price point, but they streamline those features to be simple and efficient. By design, they make it easy to get accounting up and running no matter what industry you’re in. That’s the biggest strength of horizontal accounting software, and it explains why so many construction companies use it. It’s also the biggest weakness, though.

By doing everything adequately, these solutions do nothing particularly well – a classic jack of all trades but master of none scenario. In accounting, as in construction, mediocre tools cause lots of unexpected problems. Even bigger than the problem of under-powered features, however, is the fact that horizontal accounting solutions don’t address the unique requirements of construction accounting.

Just a few examples include progress billing and integrating payroll into job costs. Construction companies deal with both on a regular basis, yet very few horizontal accounting solutions include purpose-built solutions or even adequate functionality. They make the fundamentals of construction accounting harder. Similarly so with things like managing work orders, inventory, and projects. When horizontal solutions address these issues at all, it’s not in a construction context.

Horizontal accounting software offers lots of features. What it doesn’t offer is true solutions to make accounting simpler, smarter, and more scalable for construction companies. That takes a different kind of software.

Benefitting From Construction-Specific Software

Construction-specific accounting software comes with features that are not just adequate or appropriate for construction but customized for this industry.

The benefits of using an accounting solution built for construction are hard to overstate. Accounting becomes simpler, faster, and more accurate for the in-house financial team, helping them accomplish more work in less time. The quality of their financial insights and planning improves as well, putting a construction company in a much stronger position through smart money management. Everything runs better when companies can use accounting to their advantage – and that starts by having the right software in place.

Software like Sage Intacct: a financial management platform with a full-suite of construction-specific tools. For builders of all sizes, it’s the closest thing to a complete accounting solution available. See how the right software could transform your company – schedule a demo.

Article Dean Dorton

Accounting for Real Estate and Property Management – Are you in the Cloud?

Why should your real estate or property management business use a cloud-based accounting solution? Good question, but here’s a better one – why shouldn’t you?

Technology is transforming the way we buy, sell, and manage property. And due to things like the ongoing pandemic and the evolving real-estate economy, players in this industry are reconsidering what it takes to be successful. By all accountants, the agents and managers that will thrive are those that learn to use technology to their advantage. That comes as no secret, which is why many are reevaluating the technology they have compared to the technology they need – and making updates or additions as necessary.

Which circles back to our original question. As real estate and property management companies take a critical look at their current accounting software (or lack thereof), many will decide it’s time for something different. They could choose to implement an on-premises solution…but why would they with all the cloud has to offer? Far from being equal options, the cloud has many advantages over on-premises equivalents, especially for the purposes of accounting and the particulars of real estate:

  • Visibility – No longer does data get stuck inside a specific folder, computer, or office. When all data lives inside the same cloud-based accounting platform, you gain visibility into anything and everything, all from one location. Nothing escapes notice.
  • Accessibility – With anywhere, anytime accessibility to cloud data and applications, real estate professionals have access to everything they need even when working remotely or from the field. Location never has to compromise access to information or informed decision making either. And in a work-from-home world, the cloud ensures accounting doesn’t skip a beat.
  • Speed – In hot real estate markets where there’s no time to wait, the cloud accelerates (and improves) decision making by serving up data and insights on-demand. And since data in the cloud updates in real-time without needing someone to handle it manually, the facts at hand are always current and complete.
  • Security – Real estate businesses are full of sensitive data and increasingly under attack from cyber threats of all sorts. The cloud improves cybersecurity by putting data and apps inside cloud environments that the provider (not the user) takes responsibility for securing.
  • Scalability – The cloud lets users scale their capabilities up or down to perfectly match their needs. It can scale quickly, effortlessly, and at a predictable cost (unlike on-premises) so that accounting never suffers from insufficient tech capabilities.
  • Automation – Since tech developers are focusing on cloud-based solutions, these solutions contain some of the best automation available. Accountants can take advantage of this automation to save time, prevent errors, and accomplish more by setting routine accounting obligations to run independently.

The case for the cloud is strong. It becomes even stronger with the right tech partners onboard – someone that can help a business new to cloud accounting take full advantage of what it offers. Pick a partner with deep experience in the real estate industry on top of extensive cloud expertise. Pick Dean Dorton.

Philip Massey,
Software Services Director
pmassey@ddaftech.com • 919.796.5408