Contractors often face unpredictable timelines, shifting costs, and projects that don’t follow a smooth pattern. The Completed Contract Method (CCM) provides an approach to revenue recognition for contractors that defers income until a project is finished, offering potential tax-planning advantages. This article explains how CCM works, how it differs from other contractor tax methods such as the Percentage of Completion Method, and when it may be the right fit for your business.
What is the Completed Contracts Method?
The Completed Contracts Method (CCM) is a construction accounting method used to recognize income from short-term contracts. Under CCM, all revenue and related expenses are deferred until the project is either:
- Fully completed and accepted by the client, or
- Until at least 95% of the total allocable contract costs have been incurred
No income or expenses are reported until that point, which makes CCM a useful option when long-term contract estimates are difficult to predict.
How Does the Completed Contracts Method Differ from the Percentage of Completion Method?
An alternative to the Completed Contract Method is the Percentage of Completion Method (PCM), another widely used construction accounting method. Under PCM, revenue and expenses are recognized gradually as work progresses, based on project milestones or the percentage of costs incurred to date. This method provides smoother, more consistent financial reporting and is generally recommended when project costs are predictable and relatively stable, particularly for long-term contracts that require ongoing estimates.
Pros & Cons of the Completed Contracts Method
Tax Deferral
CCM allows contractors to defer taxable income until the project is complete. While this can reduce current-year tax liability, it can also delay the recognition of project losses, which may be disadvantageous if a contract is expected to generate a loss in the current year.
Income Volatility
Deferring revenue across multiple contracts can result in several projects being completed in the same tax year, causing significant swings in taxable income from year to year.
Simplicity
CCM is easy to apply and requires less forecasting than PCM, resulting in a more straightforward and easy-to-understand financial picture.
CCM may be the correct construction accounting method for you if:
The end date for the project is unpredictable or subject to risks:
Unpredictability makes the PCM difficult to apply because it relies on accurate progress estimates, whereas the CCM allows contractors to avoid estimating long-term contract costs.
Costs are uncertain or hard to estimate:
One benefit of CCM accounting is that waiting to recognize all expenses eliminates the need for cost-estimation forecasting.
Short-Term Contract:
Contracts must be expected to be completed within two years while spanning more than one tax year to qualify as short-term construction contracts eligible for the Completed Contract Method.
- Ex: Contracts starting in December and ending in January would be considered “Long-Term” because it spanned multiple tax years
Small Contractor Gross Receipts Test:
If your annual gross receipts are less than $31 million (2025), you may qualify for the small contractor gross receipts test, making CCM available to you.
For many contractors, the Completed Contract Method provides meaningful tax-deferral opportunities and relief from uncertain cost projections. But CCM isn’t the right fit for every project. If you’re unsure which revenue-recognition method supports your goals, the Wegner CPAs construction advisors can walk you through your options and help you determine the best approach for your business.
