Contract Income

stackofquartersMost companies use a standard construction contract. The most important information contained in the contract is the amount and how often the general contractor will be paid. The contract will state whether the contractor will bill monthly, at the completion of the contract, or at certain stages of the project. The billing invoices may include copies of the subcontractor bills and lien releases.

The owner may have a supervisor at the site that confirms that the contractor has completed the work for which he has billed. The contract may also include provisions for retainages that are usually withheld from the general contractor until the project is complete. Retainages are usually withheld at a rate of 10 percent of the billed amount but the percentage may decrease over the life of the project. The general contractor, in turn, will retain a portion from the amounts owed to the subcontractors.

IRS Construction Industry Audit Technique Guide (ATG) - Chapter 1, Publication Date - May 2009
The information on this page is taken from the IRS Website and it claims that this is not an official pronouncement of the law or the position of the Service and can not be used, cited, or relied upon as such. It is current through the publication date noted above. In general, it is a good reference guide through the subjects discussed.