How Contractors Account for General and Administrative Expenses

How Contractors Account for General and Administrative Expenses-min

Government contractors deal with a range of general and administrative expenses or overhead costs. The term ‘overhead costs’ is a broad category. It’s not usually confined to a single project, but allocated and distributed across several projects. There are two types of costs in this regard: general & administrative (G&A) and indirect. How should a contractor go about allocating G&A expenses?

How to allocate G&A costs

You should consult a certified public accountant on your allocation of overhead costs. As these can be quite complex. Some of the matters to consider on how contractors account for general and administrative expenses are:

  • the real costs associated with completing a job
  • what costs can be considered as overhead costs
  • the best method for allocating G&A costs, and
  • the technology that the company uses.

Once answering these questions, you can allocate your costs in question in a number of ways. For example, label them as direct job costs or as direct labor costs (direct labor hours). The types of projects involved and the type of company determine the right method. For example, contractors whose work is less labor-intensive would do well to allocate their costs based on total direct job costs, rather than direct labor hours. In contrast, the pricing for more labor-intensive work depends on labor hours.

How to determine overhead rates

Determine overhead rates by using the chosen method of cost allocation. Calculate your rate as a percentage of revenue or a portion of revenue if your costs are allocated according to job cost. If you focus on labor costs, then calculate your rate as a percentage of those. You can also track actual costs in your general ledger (G/L). Then distribute them proportionally across your jobs.

Allocate your general and administrative expenses in a way that best suits your company, projects, and working methods with a certified public accountant. Contact Georgen Scarborough to make your financials more accurate and manageable.

The PATH Act explained by GSACPA

The path act

According to the IRS, the Protecting Americans from Tax Hikes (PATH) Act was enacted in 2015. This act extends to various aspects that taxpayers should be aware of, including changes to legislation that regulate taxes and extending some laws that would have expired. The act aims to protect taxpayers against fraud. It includes provisions that may affect the taxpayer credits of individuals and businesses. This guide will take a look at those aspects. The path act

What taxpayers need to know about the PATH Act 

The PATH Act extends expired tax laws and introduced new regulations to reduce fraud and to ensure that Americans get the correct refunds from the IRS. The PATH Act now addresses regulations governing Additional Child Tax Credit (ACTC), Earned Income Tax Credit (EITC), and Work Opportunity Tax Credit (WOTC). Although the act may not change the amount of your return or when you receive your refund, it does ensure that certain tax credits are monitored more closely.

The most important aspect to recognize is that the PATH Act will not change how you complete your tax return. Although early filers may experience some delays, these delays afford the IRS opportunities to counteract possible tax fraud.

Key aspects of the PATH Act

Under the Act, some taxpayers who file early for Additional Child Tax Credit (ACTC) or Earned Income Tax Credit (EITC) may receive their refund later. These taxpayers could have to wait until after the 15th of February to receive a refund. The delay allows the IRS to verify information that can help to reduce tax fraud. All pending refunds should be released from the 15th of February, so if you don’t receive your refund within 4-6 weeks after the 15th of February, you may want to visit the IRS website to find out about the delay. 

The Act has retroactively extended the Work Opportunity Tax Credit (WOTC). This is a credit for employers who hire workers from target groups faced with barriers to employment. 

If you’re still unsure about any part of the PATH Act, or if you need more tax tips, visit our website or reach out to talk to a tax expert about your tax refund.