Retaining Your Profits – Five Facts That Could Change the Way You Record Retainage Payable Under the Percentage of Completion Method

Construction and Real Estate

April 17, 2012

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From a tax perspective, the construction industry can be one of the more difficult to comprehend. That’s due to the industry’s broad and extensive issues, to the complexity of the tax rules, and to the choices available for tax reporting. It is understandable that some great tax planning strategies get missed. Case in point is retainage payable under the percentage of completion method (PCM) of accounting.
Withholding retainages from subcontractors is common practice, but how retainage payable should be treated in calculating the completion factor under the PCM had been a point of contention between the IRS and contractors. While the related tax planning strategy in recent years has drawn less IRS scrutiny, the tax planning strategy is still often unknown to CFOs and controllers. 

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