A $12 Million Contractor, a Record Year, and the Tax Moves That Have to Happen Before December 31

A case study in year-end tax planning for Georgia contractors

 

Picture a call we get every fall. The owner of a commercial site work contractor is having the best year in the business’s history. Revenue will land around $12 million. Net profit is tracking toward $1.4 million, up from $900,000 last year. And his first instinct is the one most contractors have: buy the new excavator before December 31 and write it off.

 

That instinct is not wrong, but it is incomplete.

 

Year-end tax planning for Georgia contractors involves more than equipment. How you recognize revenue on open jobs, how Georgia treats the deductions you take federally, whether your business makes the pass-through entity tax election, and how you pay yourself and your crew all move the number.

 

The contractor in this example is a composite of situations we see regularly, and the figures are illustrative. Here is how we would walk through his year-end.

 

Start With How You Recognize Revenue on Open Jobs

Most contractors think about year-end in terms of deductions. The bigger lever is often on the income side, and it starts with the jobs still in progress on December 31.

 

Federal tax law gives smaller contractors a choice larger ones do not have. If your average annual gross receipts over the prior three years are $32 million or less (the 2026 threshold) and a contract is expected to be finished within two years, you are generally not required to use the percentage-of-completion method for tax purposes. You may be able to use the completed-contract method instead, which means the profit on a job is reported in the year the job is finished, not spread across the years it is worked.

 

Here is what that looks like. Our contractor has a $2 million job that is 60% complete at year-end with $300,000 of expected profit. Under percentage of completion, $180,000 of that profit lands on this year’s return. Under the completed-contract method, none of it does until the job wraps up next year. In a record year, that is real deferral.

 

This is a timing tool, not a permanent savings, and changing your accounting method takes planning and a filing with the IRS. It also only works if your work-in-progress schedule is accurate. If your WIP schedule (the report that tracks each job’s costs, billings, and percent complete) has not been reviewed since summer, that is the first document to pull.

 

The most valuable year-end move for a contractor is often on the income side, not the deduction side.

 

Equipment: The Federal and Georgia Returns Tell Different Stories

Now the excavator. Say it costs $400,000. Under federal law, 100% bonus depreciation is now permanent, so if the machine is placed in service by December 31, the full $400,000 can be deducted this year. At a 37% federal rate, that is $148,000 of federal tax deferred.

Georgia is a different story. The state does not follow federal bonus depreciation, and the 2026 conformity bill signed in March kept it that way. Georgia only partially follows the federal Section 179 expensing rules as well. The result is that the first-year deduction on your Georgia return will usually be smaller than on your federal return, and your CPA has to track two depreciation schedules for the same machine. That is not a reason to skip the purchase. It is a reason to model the state number before you count on it.

Timing matters too. Placed in service means the equipment is delivered and ready for use in your business, not just ordered or paid for. A machine that arrives January 4 is next year’s deduction no matter when the check cleared. With dealer lead times what they are, a December decision can easily become a January delivery.

And the purchase has to make sense on its own. Spending $400,000 to save $148,000 in federal tax still leaves $252,000 out the door. If the business needs the excavator, buying it this year is smart. If it does not, the deduction alone is not a reason to buy it.

 

A deduction you have to spend $252,000 to get is still $252,000 out the door.

 

The Pass-Through Entity Tax Election Matters More in a Big Year

Our contractor’s business is an S corporation, which means its profit flows through to the owners’ personal returns. Georgia’s income tax rate for 2026 is 4.99%, down from 5.19% last year. On $1.4 million of profit, that is roughly $69,860 in Georgia tax.

When the owners pay that tax personally, much of it may not be deductible on their federal returns because of the federal cap on state and local tax deductions. Congress raised that cap in 2025, but it phases back down for higher-income owners, and many successful contractors fall into that range.

 

Georgia’s pass-through entity tax election, often called the PTET election, solves that. The business pays the Georgia tax at the entity level, and that payment is deductible as a business expense on the federal return. For our contractor, deducting $69,860 at a 37% federal rate is worth about $25,800 in federal tax, before accounting for any other year-end moves that lower the profit figure.

 

There are two catches. The election is made on the business’s Georgia return (Form 600S for an S corporation or Form 700 for a partnership) and cannot be undone once the filing deadline passes. And an electing business is expected to make estimated tax payments at the entity level, the way a C corporation does. That means the decision affects your fourth-quarter cash plan, not just your tax return.

 

Pay Yourself and Your People on Purpose

Bonuses are the other big year-end decision for contractors with a strong crew. If your business uses the cash method, bonuses paid by December 31 are deductible this year. If it uses the accrual method, bonuses that are fixed by year-end and paid within two and a half months after year-end generally count for this year. Either way, write down the amounts and the decision before December 31.

A record year is also the right time to revisit what the owners pay themselves. S corporation owners have to take a reasonable salary for the work they do, and a salary that made sense at $900,000 of profit may look light at $1.4 million. Getting that number right protects the savings the S corporation structure provides.

 

Finally, retirement plans. For 2026, the combined limit on employer and employee contributions to a 401(k) or profit-sharing plan is $72,000 per participant. Many plan types have to be in place by December 31 to count for this year, so if adding a plan has been on your list, the decision cannot wait until tax season.

 

What You Should Do Before December 31

Every move in this piece works better in October than in December. By mid-fall, you should have an updated WIP schedule and a realistic projection of where the year will land. That projection is what makes every other decision possible.

In November, make the calls: whether your contracts qualify for the completed-contract method, which equipment purchases the business needs and whether they will be delivered in time, whether the PTET election makes sense and what estimated payment it requires, and what bonuses and owner salaries should look like. In December, the job is execution: confirm delivery dates, run payroll, and fund whatever plan contributions have deadlines.

 

Contractors who wait until the week before Christmas usually end up with one option left, which is buying equipment. Contractors who start in October get to use all of them.