THE $32 MILLION GROSS RECEIPTS TEST WHAT IT ALLOWS A CONTRACTOR, AND WHAT CHANGES PAST IT.
For 2026, a contractor whose average annual gross receipts for the prior three tax years are $32 million or less, up from $31 million for 2025, generally passes the small business test. Passing it lets a contractor use the cash method, and for contracts expected to be finished within two years, the completed contract method or another exempt method in place of percent complete for tax. It also exempts the business from the interest deduction limit. These choices change when taxable income is reported, so they are a planning decision for you and your CPA.
Most subcontractors in the $1M to $12M range are well under the threshold and many have never made an active choice about their tax method. That is money left on the table in a growth year, when revenue billed on long-term jobs can create taxable income before the cash is collected. A growing company should also watch the three-year average, because crossing it can require changing methods. The tax method is separate from the books: the WIP schedule and the statements the surety relies on use percent complete either way.
WHAT IT MEANS.
The gross receipts test is the IRS test under section 448(c) that treats a business as small for several tax rules when its average annual gross receipts for the prior three years are at or below a threshold, $32 million for 2026.
The threshold is set by statute at $25 million and adjusted for inflation each year. Related companies under common ownership are generally combined for the test.
WHERE CONTRACTORS MISS THE SMALL BUSINESS OPTIONS.
No one chose the tax method
The company has filed the same way since its first return, and no one asked whether a different method for long-term contracts would defer tax in a growth year. The choice is available to most subcontractors, and the CPA can model it with a clean WIP schedule.
The books and the tax return are treated as the same thing
An owner switches to the completed contract method for tax and assumes the monthly books should follow. The surety still wants percent complete statements. The books and the return can use different methods, and the controller keeps the two reconciled.
A growing company crosses the threshold without a plan
A company that grows from $20M to $35M in three years can cross the three-year average in a single year and have to change methods, which can bring deferred income into one tax year. A projection of the average two years ahead gives the CPA time to plan.
WHAT IT LOOKS LIKE IN DOLLARS.
$31 million of average annual gross receipts for the prior three tax years.
$32 million of average annual gross receipts for the prior three tax years, indexed from the $25 million in the statute.
The cash method, exempt methods such as completed contract on contracts expected to finish within two years and exemption from the business interest deduction limit.
THREE STEPS TO GET THE BENEFIT WITHOUT A SURPRISE LATER.
Add up gross receipts for the prior three tax years, including related companies, and divide by three. Project it two years ahead if the company is growing. That number tells the CPA which options are available now and when they may end.
Bring a current WIP schedule to a year-end planning meeting and ask the CPA to compare percent complete with the exempt methods for tax. The difference is usually largest in a year with heavy billings on jobs that are not finished.
Whatever the tax return uses, keep the monthly books and the WIP schedule on percent complete. That is how the owner sees real job profit each month and what the surety and bank expect.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $3,300 | $1,000 |
| $1M to $3.5M | $2,600 to $5,300 | $1,500 |
| $3.5M to $6.5M | $3,800 to $8,300 | $3,000 |
| $6.5M to $9.5M | $5,100 to $11,800 | $4,500 |
| $9.5M to $12.5M | $6,100 to $14,900 | $6,000 |
| $12.5M to $15.5M | $7,400 to $17,650 | $7,500 |
| $15.5M to $18.5M | $9,400 to $22,400 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
Every job shows its margin while it is still open.
Everything in Core, plus the bookkeeping and bank reconciliations done for you, and the job costing and WIP software set up, loaded with your cost codes, and managed every month. Use your own online software, or move to ours and we cover it.
A bookkeeper we choose does the books and reconciliations. No payroll.
You approve, and the money side gets handled.
Everything in Strategic, plus a controller we choose who handles your bills and receivables for you the way an in-house controller would. They call vendors, pay the bills and keep the accounting current. We plan the cash flow first, and you approve every payment because it is your money.
A controller we choose does the payables and receivables. No payroll, no pay applications, no collections.
FREQUENTLY ASKED.
