Tools, materials, vehicle costs, and subcontractor payments — the deductions that separate smart contractors from the ones who overpay.
Contractors have one of the most robust sets of deductions available. Here is what to claim.
Hand tools, power tools, ladders, levels — fully deductible under Section 179 in the year of purchase.
Lumber, hardware, fasteners, and materials purchased for jobs. Keep all receipts.
67¢/mile or actual expenses for your work truck or van. Most contractors drive 20,000+ business miles/year.
Amounts paid to subcontractors are fully deductible. Issue 1099-NEC if you pay a sub $600+.
Steel-toe boots, hard hats, safety vests, and work gloves not suitable for everyday wear.
General liability insurance and workers comp premiums are fully deductible.
If you run your contracting business from home (bids, invoicing, scheduling), deduct that % of rent and utilities.
Contractor license fees, permit costs, and bond premiums.
Trade courses, code updates, apprenticeship programs, and industry certifications.
Shelter up to 25% of net income. A contractor earning $90K net saves $6,188 in taxes by maxing contributions.
If you pay a subcontractor $600+, you must issue a 1099-NEC or risk losing the deduction and facing IRS penalties.
You can only deduct the business-use percentage of vehicle expenses. Keep a mileage log separating personal and business trips.
Every tool purchased for work is deductible. Many contractors buy tools throughout the year and forget to record them at tax time.
Contractor income is variable. Underpay quarterly and the IRS charges 8% annual penalty on the shortfall.
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Contractors receive 1099s, pay self-employment tax, and can deduct business expenses. Employees receive W2s, have taxes withheld, and generally cannot deduct work expenses.
Yes. Use the standard mileage rate (67¢/mile) or actual expenses including fuel, insurance, maintenance, and depreciation based on business-use percentage.
Yes, if you pay a subcontractor $600 or more in a year, you must issue a 1099-NEC by January 31. Failure to do so can disallow the deduction.
Self-employment tax is 15.3% of net income. You can deduct half of it from your gross income when calculating federal income tax.
An LLC provides liability protection — important in construction where injuries and property damage can occur. It does not change your taxes unless you elect S-Corp status.
Ask anything about deductions, deadlines, or quarterly taxes. Get specific dollar amounts — not generic advice.
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