If you do both maintenance and installs, the tax law sees two businesses. Mowing, cleanups and seasonal service contracts are service income. A patio, retaining wall, outdoor kitchen or drainage system you start in the fall and finish in the spring is a construction contract, and construction contracts have their own timing rules. Many landscapers don't use them. They report the deposit when it hits the bank, deduct the stone and labor when they pay for them, and let the job's profit land in whatever year the cash happened to move.

Which jobs count

A long-term contract is a contract to build, install or construct property that isn't finished in the tax year you signed it (IRC §460(f)). For you, that usually means install work that crosses December 31.

- Likely in: Patios, walkways, retaining walls, outdoor kitchens, irrigation, drainage and similar permanent improvements to the customer's land. Planting-only jobs may not count as construction, so your preparer checks those.
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- Out: Mowing, maintenance, snow removal and other service contracts. You aren't building anything, so these rules don't apply.

A job you sign and finish in the same tax year isn't a long-term contract, no matter how long it took.

Your choice as a smaller contractor

Large contractors must use the percentage-of-completion method. They estimate total job cost, report income each year as costs come in, then recompute later and pay or receive interest on Form 8697.

You're exempt on a construction contract when both of these hold (IRC §460(e)(1)(B)):

- Size: Your average gross receipts for the prior 3 tax years are no more than $31 million for tax years beginning in 2025, or $32 million for 2026 (Rev. Proc. 2025-32). Related businesses may have to be combined.
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- Duration: You expect to finish the job within 2 years of starting it.

An exempt contract can use the completed-contract method, among other allowed methods (Reg. §1.460-4(c)). Under that method, the full price and all the job's costs are reported in the year the job is finished (Reg. §1.460-4(d)), and deposits and progress payments don't change that. A job is finished when the customer can use it and at least 95% of its costs are in, or at final acceptance, whichever comes first (Reg. §1.460-1(c)(3)). As a small contractor, you can generally use this method for exempt contracts while staying on cash for everything else. Costs follow the allocation rules for exempt contracts in Reg. §1.460-5(d).

Here's why it matters: A fall install brings in a deposit and a progress payment in 2026, but most of the stone, equipment rental and crew hours come in the spring. On cash, you pay 2026 tax on money that's already spoken for in 2027. Under the completed-contract method, the income and the costs land in the same year.

Example:: you sign a $60,000 patio and wall job in October 2026. You collect $25,000 in October and $15,000 in December, and you spend $12,000 by December 31st. The job finishes in April 2027 at a total cost of $42,000. On cash, about $28,000 of net income lands in 2026 on a job that isn't done. Under the completed-contract method, nothing is reported in 2026, and $18,000 of profit is reported in 2027.

This is a deferral, not a reduction. It helps most when a job's cash arrives before its costs, or when this year is stronger than next year.

Retainage and change orders

- Retainage: On commercial or HOA jobs, the customer may hold back a percentage until final acceptance. On cash, you report retainage when you receive it. On accrual, it's generally income once the contract's release conditions are met, and your preparer confirms. Track retainage by job, because it's the receivable that most often falls off the books.
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- Change orders: An added fire pit or a longer wall changes both the price and the cost. Under the completed-contract method, a change order generally rides with the original job and is reported when the job is finished (Reg. §1.460-1(e)). A verbal change order that never reaches the job file gives you a job that looks profitable on the bid and loses money in the bank.

Job costing comes first

Neither method works without costs tracked by job. Even on cash, if you can't see profit by job, you'll keep bidding the installs that lose money and calling it a slow season. The fix costs nothing: put a job number on every customer invoice, material receipt, equipment rental and crew timesheet. In most bookkeeping software, that's a class or project field you just turn on.

What to do

1. List every open install job: Record the contract date, start date, expected finish, price, amounts billed and collected, and costs to date. This shows which jobs cross the year.
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2. Separate maintenance from installs: Different rules apply, and one revenue account for both hides the problem.
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3. Turn on job numbers in your bookkeeping software, and post every change order to its job, in writing and signed by the customer. ​
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4. Check the gross receipts test: Average your prior 3 years' gross receipts, including related businesses, against the $32 million limit for 2026.
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5. Find out what method your last return used: If installs have been reported on cash, that's your method, and changing it generally takes Form 3115. Switching to the small-contractor exemption is generally an automatic change. It applies only to contracts you sign in the year of the change or later, so jobs signed in earlier years stay on the old method. Your preparer confirms the change number.
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6. Model 2026 against 2027: Compare the tax on your open jobs under your current method and under the completed-contract method. Your preparer checks your state.

The tradeoff

The completed-contract method bunches income into the year jobs finish. If several big installs wrap up in the same year, you get a spike that cash would have spread out, and the deferral can turn against you in a strong year. It also takes job-level records. If your installs are small and finish inside the season, the effort may not pay for itself. If you do fall hardscape with spring completions, it can keep real money in the business when you need it for equipment and payroll.

If you run installs that cross year-end, collect deposits in the fall, or can't tell which jobs made money last season, book a 30-minute Tax Leak Review before year-end: https://cal.com/mister-moneysleeves/tax-leak-review​

Tristan D. Taylor, EA

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