Deposits before the job starts, materials that may or may not carry sales tax, and a billing schedule spread across months — we handle the accounting questions specific to installation and remodeling work, so you can focus on the install.
Home improvement, drywall, window, and glass companies run into a question most other trades don't deal with as often: when does a deposit or progress payment actually become income, and does sales tax apply to the materials you're installing? Get either of these wrong and your books either overstate your tax liability or understate it — neither is a good place to be when the IRS or the state comptroller's office takes a look.
At Mercer Flanagan, we've worked with home improvement and installation businesses in Frederick and surrounding counties for over 50 years. We know how deposit and progress billing should actually be recorded. We know how Maryland treats materials sales tax for contractors. And we're here year-round — not just in April.
"The remodeling and installation businesses that come to us mid-year usually have the same gap: deposits get recorded as income the moment they hit the bank account, whether or not the work has actually been done yet. That makes a slow month look great and a busy month look terrible — neither picture is accurate."
We work with:
These are the situations we hear about most often from new clients in this industry.
A deposit collected before work starts is often a liability, not income, until the job is actually performed. Recording it as income immediately distorts your monthly and quarterly numbers and can overstate your tax liability for the period.
Whether you pay sales tax on materials as the consumer, or collect it from the customer as a retailer, depends on how Maryland classifies the type of work you're doing. Many installation businesses have never had this confirmed for their specific situation.
Projects billed across several milestones need job costing that matches costs to each billing stage. Without this, it's easy to bill ahead of your actual costs on one job and fall behind on another without noticing until the project wraps up.
Many established owners are still operating as a sole proprietor well past the point where an S-Corp election would meaningfully reduce self-employment tax. We evaluate this for every new client.
Bulk-purchased materials sitting in a warehouse are treated differently than materials bought specifically for one job. Mixing these up creates inaccurate cost of goods sold and a distorted profit picture.
If a deposit doesn't cover your material and labor costs upfront, a string of projects can strain cash flow even while the business is profitable on paper. We help you see this clearly before it becomes a crisis.
Cash comes in, but the work hasn't started. Under accrual accounting, this is generally a liability on your books, not revenue yet.
Costs are incurred. Depending on your method, some or all of the deposit may now convert to recognized revenue as work is completed.
The job is complete and the final invoice is paid. Remaining revenue is recognized, and the job's true profitability becomes visible.
How your business is structured has a bigger impact on your tax bill than almost any other single decision. Here's how the common options compare for home improvement and installation businesses.
| Structure | Self-Employment Tax | Admin Complexity | Best For |
|---|---|---|---|
| Sole Proprietor / Single-Member LLC | 15.3% on all net income | Lowest | New or very small installation businesses |
| S-Corporation | Only on reasonable salary | Moderate | Established businesses earning $80K+ net |
| Partnership / Multi-Member LLC | Can be high | High | Businesses with multiple owners |
The right answer depends on your income level, how many employees you have, and whether you have business partners. We analyze this for every new client. Read our S-Corp vs. LLC guide →
We set up your books so deposits and progress payments are recorded correctly — as liabilities until earned, then recognized as revenue as the work is actually completed — so your numbers reflect reality, not just cash in the bank.
We help confirm how your specific work is classified under Maryland sales tax rules and make sure you're handling materials tax correctly, whether you're paying it as the consumer or collecting it from the customer.
We evaluate your current structure, run the numbers on what an S-Corp election would save you, and handle the paperwork to make the switch if it makes sense. For many owners earning over $80,000 in net income, this is the highest-return tax move available.
S-Corp vs. LLC: Which Is Right for You? →We prepare your business return — Schedule C, Form 1120-S for S-Corps, or Form 1065 for partnerships — along with your personal Form 1040, including all schedule attachments.
Small Business Tax Services →We set up job costing that ties materials, labor, and subcontractor costs to each billing milestone, so you can see whether a project is actually profitable at every stage, not just at the end.
QuickBooks Support & Training →We calculate your quarterly estimated payments based on your actual income and adjust as the year unfolds. No surprise April bills.
Tax Planning Services →If you need compiled financial statements for a bank loan, bonding requirement, or business expansion, we handle that. Clean, professionally prepared statements that lenders and bonding companies accept.
Financial Statement Compilations →These are the deductions that home improvement, drywall, window, and glass companies most often underutilize or miss entirely. Every situation is different, and eligibility depends on your specific circumstances, but these are worth discussing with us.
Deductibility always depends on your specific facts and circumstances. The IRS has specific rules about what qualifies, how to document it, and how to calculate it. We make sure you're capturing what you're entitled to — and that it's documented properly so it holds up if questioned.
Big firms want big corporate clients. We built our practice around the contractors and installers who are the backbone of Frederick County's home improvement industry. You won't be handed off to a junior associate. You won't wait three weeks for a call back. You get a CPA who knows your name and your situation.
Year Mercer Flanagan was founded in Frederick, MD
Years serving local professionals, businesses & nonprofits
Rated by clients across Frederick County
Access to your CPA — not just during tax season
Year-round access to your CPA. Questions get answered when you have them, not weeks later.
We understand how progress billing and deposits should actually flow through your books.
We're based in Frederick, MD. We know this community and we're not going anywhere.
We don't just file your returns. We contact you when something changes that affects your tax situation.
Book a free 20-minute consultation. We'll tell you honestly whether we can help — and what it would cost. No pressure, no obligation.
Book a Free Consultation