Tax Deductions for Contractors

Complete Deduction List

• •Tools & Equipment
• •What counts: Power tools, hand tools, ladders, scaffolding, generators, compressors, saws, drills, nail guns, levels, measuring equipment. Section 179 allows full deduction in the year of purchase.
• •Estimated annual value: $2,000–$10,000
• •Records to keep: Receipts, asset lists for items over $2,500
• •Common mistake: Not using Section 179 to deduct expensive equipment immediately instead of depreciating over years
• •Vehicle & Mileage
• •What counts: Work truck/van driven to job sites, supply stores, client meetings. 72.5¢/mile (standard) or actual expenses. Trucks over 6,000 lbs GVWR qualify for higher Section 179 vehicle deductions.
• •Estimated annual value: $3,000–$12,000
• •Records to keep: Mileage log or full vehicle expense records
• •Common mistake: Not claiming the heavy vehicle deduction — trucks over 6,000 lbs GVWR can be deducted up to $32,000 under Section 179 in 2026
• •Materials & Supplies
• •What counts: Lumber, drywall, paint, nails, screws, fasteners, concrete, PVC, electrical wire — materials you purchase for jobs and aren't reimbursed for
• •Estimated annual value: $5,000–$20,000+
• •Records to keep: Supplier receipts, job-specific material lists
• •Common mistake: Not tracking materials purchased with cash — always get a receipt
• •Subcontractor Payments
• •What counts: Payments to electricians, plumbers, painters, or other subs you hire for projects
• •Estimated annual value: $5,000–$50,000+
• •Records to keep: Contracts, invoices, W-9s, 1099-NEC forms
• •Common mistake: Not filing 1099-NECs for subs paid $600+ — this triggers IRS penalties
• •Insurance
• •What counts: General liability, workers' comp, builder's risk, commercial auto, bonding premiums, umbrella policies
• •Estimated annual value: $2,000–$8,000
• •Records to keep: Policy declarations, premium payment records
• •Common mistake: Forgetting to deduct bonding costs — surety bond premiums are deductible
• •Licensing & Permits
• •What counts: Contractor license fees, building permits, trade certifications, OSHA training
• •Estimated annual value: $300–$2,000
• •Records to keep: License receipts, permit copies
• •Common mistake: Not deducting building permits you pull for clients
• •Phone & Technology
• •What counts: Cell phone (business %), estimating software (Buildertrend, CoConstruct), accounting software, GPS
• •Estimated annual value: $500–$1,500
• •Records to keep: Subscription receipts, phone bills
• •Common mistake: Not deducting construction management software subscriptions
• •Fuel & Vehicle Maintenance
• •What counts: If using actual expense method — gas, diesel, oil changes, tires, repairs, truck accessories (toolboxes, racks)
• •Estimated annual value: $3,000–$8,000
• •Records to keep: Fuel receipts, repair invoices
• •Common mistake: Using actual expenses one year and standard mileage the next without understanding the rules (if you use actual in the first year, you can't switch to standard for that vehicle)
• •Protective Gear & Safety Equipment
• •What counts: Hard hats, steel-toe boots, safety glasses, gloves, ear protection, high-vis vests, fall protection harnesses
• •Estimated annual value: $200–$1,000
• •Records to keep: Receipts
• •Common mistake: Not deducting steel-toe boots — if they're required for work and unsuitable for everyday wear, they're deductible
• •Home Office
• •What counts: Dedicated space for estimates, invoicing, project planning — exclusive and regular use
• •Estimated annual value: $1,500 (simplified)
• •Records to keep: Floor plan measurements
• •Common mistake: Thinking contractors don't qualify — if you do admin work from home, you likely do
• •Self-Employed Health Insurance
• •What counts: Health, dental, vision premiums
• •Estimated annual value: $3,000–$12,000
• •Records to keep: Premium statements
• •Common mistake: Not taking this deduction at all
• •Retirement Contributions
• •What counts: SEP-IRA or Solo 401(k)
• •Estimated annual value: $3,000–$20,000+
• •Records to keep: Contribution statements
• •Common mistake: Not contributing because cash flow is unpredictable. You can contribute right up to the tax filing deadline.

How to Claim

File Schedule C or, if you're incorporated, the appropriate business return. All income from 1099-NECs goes on Schedule C Line 1. Deductions in Part II. For vehicles, complete Part IV. For equipment over $2,500, consider Section 179 (Form 4562). Pay quarterly with Form 1040-ES. If you have employees, you'll also need payroll tax filings.

FAQ