Subcontractors often pay more in taxes than they need to because they miss legitimate deductions. While you should always consult with a qualified tax professional for advice specific to your situation, here are 15 deductions that construction business owners should discuss with their accountant.
Vehicle and Transportation
Your work truck or van is likely your biggest deductible expense. You can either deduct the standard mileage rate for business miles driven or deduct actual expenses including fuel, maintenance, insurance, depreciation, and registration. Keep a mileage log that records every business trip with the date, destination, purpose, and miles driven.
Tools and Equipment
Hand tools, power tools, safety equipment, and small equipment purchases are generally deductible in the year purchased. Larger equipment may need to be depreciated over several years, or you may be able to take advantage of Section 179 expensing to deduct the full cost in the purchase year.
Insurance Premiums
General liability insurance, workers compensation, commercial auto insurance, professional liability coverage, and health insurance premiums for yourself and your employees are all business expenses.
Home Office Deduction
If you use a portion of your home exclusively for business, such as an office where you do estimates, billing, and administrative work, you may qualify for the home office deduction. This includes a proportional share of rent or mortgage interest, utilities, and maintenance.
Continuing Education and Licensing
Trade certifications, license renewals, continuing education courses, safety training, and industry conference fees are deductible business expenses that keep you qualified and competitive.
Materials and Supplies
All materials purchased for projects are deductible, as are consumable supplies like fasteners, tape, blades, and safety supplies. Track these expenses carefully by project for accurate job costing.
Subcontractor Payments
Payments to other subcontractors you hire are deductible. Make sure to collect W-9 forms and issue 1099 forms for anyone you pay more than $600 in a year.
Phone and Internet
Your cell phone plan, internet service, and any business-specific communication tools are deductible to the extent they're used for business.
Software and Technology
Invoicing software, accounting tools, project management platforms, estimating software, and other business technology subscriptions are deductible expenses.
Travel Expenses
When you travel for work beyond your normal commute, meals, lodging, and transportation are deductible. This includes travel to job sites outside your metro area, trade shows, and client meetings.
Retirement Contributions
Contributions to a SEP-IRA, SIMPLE IRA, or Solo 401(k) reduce your taxable income while building your retirement savings. The limits are generous for self-employed individuals.
Bad Debt
If a client doesn't pay you, you may be able to deduct the unpaid amount as a bad debt. This requires documentation showing your collection efforts and the debt being uncollectible.
Marketing and Advertising
Business cards, website hosting, online advertising, vehicle wraps, signage, and promotional materials are deductible business expenses.
Professional Services
Accounting fees, legal consultations, business coaching, and other professional services you use are deductible.
Depreciation on Equipment
Larger purchases like vehicles, heavy equipment, and trailers can be depreciated over their useful life, providing deductions spread across multiple years.
The Bottom Line
Proper tracking is the key to maximizing deductions. Use accounting software that lets you categorize expenses correctly and maintain records of every business expense. The cost of good bookkeeping is itself a deductible expense, and the tax savings it enables usually far exceed the cost.