Previously, pass-through entities (e.g. LLCs, S corporations, Partnerships) that exceeded $10 million in average gross receipts were required to use the accrual percentage of completion method for long-term contracts. The accrual method recognizes revenue at the point where it is earned rather than when cash is actually received (cash basis). Additionally, C corporations that exceeded $5 million in average gross receipts were not eligible to use the cash method of accounting, and C corporations that exceeded $10 million were required to use the accrual percentage of completion method for long-term contracts.

Under the new law, these thresholds have been increased to $25 million, giving contractors with less than $25 million in average gross receipts several options to consider (regardless of how they are structured) when choosing their accounting method, including the overall cash method, completed contract method, accrual excluding retainage, or other permissible contract methods.

Confused? Read more about this from BPCPA here.