How the One Big Beautiful Bill May Impact Financial Statements for Contractors

The passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, marked a significant shift in the financial and regulatory landscape for contractors across the United States. With sweeping tax reforms and substantial federal spending initiatives, the bill is poised to reshape how contractors manage their accounting, tax planning and financial reporting — particularly for C-corporation contractors.

Deferred Tax Recalculations

In accordance with ASC 740, any changes in tax law must be reflected in the financial statements during the period in which the law is enacted — in this case, July 4, 2025. For contractors, deferred tax assets and liabilities must be remeasured using the new tax rates and rules as of Q3 2025, not at the start or end of the year. These adjustments will be included in the income tax expense section of the financial statements, potentially causing noticeable fluctuations in reported earnings.

Accounting Method Flexibility

One of the most notable changes introduced by the Act is the expanded tax exemption from the percentage-of-completion method (PCM) for certain residential construction contracts. Previously, many contractors were required to recognize revenue as work progressed, which often resulted in higher taxable income during the early stages of a project. Under the new law, contractors involved in multifamily housing, senior living, student housing and mixed-use developments may now elect to use the completed contract method (CCM). This shift allows contractors to defer revenue and tax liability until a project is finished, improving cash flow and reducing interim tax burdens. As a result, financial statements for C-corporations may reflect lower current income tax owed during the early construction phases, which would have the opposite effect on deferred tax liabilities and deferred tax expense.

Accelerated Depreciation and Expensing

The bill also reinstates 100% bonus depreciation and expands Section 179 expensing limits. This means contractors can now immediately deduct the full cost of qualifying equipment, vehicles and property improvements in the year of purchase. While this provides a significant tax advantage, it also introduces temporary timing differences between book and tax depreciation. These differences must be accounted for under ASC 740, potentially affecting deferred tax assets and liabilities on the balance sheet.

Interest Expense Deductibility

Another favorable change for contractors is the revision of the interest expense limitation rules under Section 163(j). The bill reverts the limitation calculation to an EBITDA-based formula rather than an EBIT-based one. This adjustment allows contractors, especially those financing large-scale projects, to deduct a greater portion of their interest expenses. The increased deductibility can lower the effective tax rate and may require remeasurement of deferred tax balances, further influencing the income tax line on financial statements.

Strategic Planning and Financial Disclosures

Beyond tax reform, the bill allocates over $190 billion to the Department of Homeland Security and other federal agencies, with a strong focus on border infrastructure, surveillance and AI systems, and modernization of maritime and aviation facilities. This influx of federal funding is expected to generate a surge in contracting opportunities, particularly for firms in construction, engineering and technology integration in those sectors. As contractors secure new projects, they may need to revise revenue forecasts, expand operational capacity and update disclosures related to backlog and contract assets and liabilities.

Given the potential significance of changes introduced by OBBBA, contractors are encouraged to reassess their historical accounting method elections and tax positions. Financial statement disclosures should be updated to reflect the impact of the new law, and companies should consider the long-term implications of permanent tax changes on debt covenants, capital investment strategies and project financing.

The One Big Beautiful Bill represents a transformative moment for the contracting industry. By altering how revenue is recognized, how assets are depreciated and how taxes are calculated, the legislation has the potential to impact financial statement presentation and the bottom line. Contractors who adapt quickly and strategically will be best positioned to capitalize on opportunities and mitigate the risks posed by the OBBBA.

Contributing author: Kaitlyn H. Axenfeld, CPA/CFF, CFE, has extensive experience providing audit, review, compilation and advisory services to a wide variety of clients with a focus on the construction, architecture/engineering and manufacturing industries. Kaitlyn also specializes in forensic accounting and consulting services, including litigation support to law firms and privately held companies in fraud detection, damage calculations and prevention matters. If you have any questions or need any assistance, please contact Kaitlyn at kaxenfeld@dmcpas.com.