Bid guarantee

[JG EA]

If a contractor puts in a bid guarantee in 2011 to bid for a job and gets it back in 2012 because he didn't get the job, can he deduct it in 2011 and count it as income in 2012?

He does run a risk of losing the money - but only if he is unable to do the job or to complete the job.

[Nashville]

Percentage of Completion

JG the percentage-of-completion method of recognizing revenue would appear to defeat this, unless of course the job is projected to lose money. And even that would still require some revenue to be claimed. Virtually all contractors working on contracts longer than one year are supposed to follow the percentage-of-completion method.

[Roland Slugg]

Regardless of the accounting method used I would treat the bid guarantee as a deposit anyway ... capitalized as an asset, not deducted as an expense when paid, just like a rent deposit.

[JG EA]

Thanks to both of you. Not the answer my client was hoping for but the one that has the ring of truth. I couldn't find anything on it in the time frame needed so I really appreciate your help.