3 Big Tax Deductions for Contractors and Other Construction Accounting Tips

It’s that time of year again! Tax Day is April 18th.

This is the time of year for contractors when having good construction accounting in place is a huge help. If you’re scrambling to get things together, however, we’re here to help with some tax tips and a list of deductions you’ll want to be sure to take advantage of.

Because of the Good Friday and Passover holidays, Tax Day for 2022 is pushed back a couple of days past the usual April 15th deadline. If you need the extra time to file, that might make it an extra good Friday.

Procrastinating over the next week will only mean more stress and expense for your business, so take advantage of our construction accounting experts’ advice to help guide you through it all.

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Tax Tips for Contractors

As we’ve mentioned before, construction contractors are in a unique position when it comes to their accounting. In many ways, they are just like any other small business owner. They have revenue and expenses, and everything has to balance.

However, unlike other businesses (like manufacturing or retail), contractors often have to keep up with multiple revenue streams from all the different projects they are working on…as well as all of the associated expenses.

Anyone who has been in the construction industry very long can verify that no two projects are ever the same. Variations in bid amounts, labor costs, supplies, and travel requirements, as well as scheduling conflicts/delays, all mean that contractors have to treat each project almost like its own mini-business.

At the end of the year, though, the IRS expects you to file an accurate return for your one business. That’s why it’s important to have solid accounting practices in place all the time to help simplify the tax preparation process each April.

Anyone who is self-employed and receives payment from others based on stand-alone projects or time-bound agreements is an independent contractor. According to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

What Can I Write Off As a Small Business Owner?

The bad news is that, as a small business owner, you carry a lot of the burden of insurance and taxes on yourself. The good news is that, as a small business owner, you get to benefit from a long list of deductions that you can write off of your taxes when you file.

Several months ago, we did a post on “16 Small Business Tax Deductions to Really Save You Money This Year.” You can check that out for more detail, but here’s the list in a nutshell:

  • Utilities
  • Rent
  • Insurance
  • Equipment
  • Office Supplies
  • Phone & Internet
  • Software
  • Vehicles
  • Advertising/Marketing
  • Travel
  • Interest
  • Bad Debt
  • Employee Salaries
  • Employee Benefits
  • Contractors
  • Legal & Professional Fees

Common Tax Deductions for Construction Workers

When it comes to specific tax deductions that construction workers and contractors can take advantage of, here are a few to keep in mind:

1. Tools & Gear

Building things is hard work, and it’s really tough on the things you use to get the job done. When you’re thinking about deductions for equipment, be sure to include everything you use on a regular basis and may have had to replace this year. Ladders, hammers, tool belts, drill bits…these things add up.

And did you have to buy a new pair of work boots? Those kinds of things can be deductible too.

Larger, more expensive, pieces of equipment can be deducted using depreciation. If you run a landscape company and purchased a $10,000 mower, you can take a small deduction every year over the next several years until it’s time to replace it again. Our tax experts can help you determine the best way to take full advantage of that.

2. Licenses

In our post on “TN Contractor’s License Renewal Made Easy,” we detailed the steps in the process of getting and renewing your license here in Tennessee. (Other states will have a similar process.) Don’t overlook the money you’ve paid this year to stay licensed! That’s at least a couple hundred dollars that you can use to lower your tax burden.

3. Mileage, mileage, mileage

Because the very nature of your industry has you traveling several miles every day to job sites, supply stores, and back again, you can quickly pile up significant tax savings in the form of milage deductions.

The standard IRS rate this year for business travel is 58.5 cents/mile. So be sure to take advantage of all those miles you and your crew are putting on your vehicles. In order to justify it, though, you’ll need to have some sort of record.

Many of the “Top Construction Accounting Software Options for Your Business” have built-in apps to help you do that in real time through your phone. So there’s no excuse for letting that tax money slip through your fingers!

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Let Us Be Your Construction Tax Guide to Maximum Savings

Our team of tax pros has been helping small business owners and contractors save money on their taxes for over 40 years. We can get your return filed accurately and on time so you can sleep stress-free.

Schedule a call today to discover what it means to expect more from your CPA.

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