Here are some simple construction business tax deductions
Working in the construction industry provides many avenues for tax deductions. Understanding these types of expenses, such as travel to a job site or the tools you buy to complete a variety of projects, will ensure that they are properly documented. As a contractor, it’s crucial that you track your business expenses when it comes time to file your tax forms. With the fiscal year ending and tax-filing season approaching, we want to help you understand what deductions you can claim to help decrease your tax bill. If you’re self-employed, most likely you’ll want to complete a Schedule C (Form 1040). Below is a list of business expenses you can claim on your annual tax return.
*Please note these were written based on the 2019 Schedule C form*
Advertising (line 8)
Businesses often use advertising to find work and build their brand. You can deduct any associated fees or materials that you use to market your business. This includes online and printed materials but does not include gifts.
Car and truck expenses (line 9)
A lot of construction businesses use a vehicle such as a car, truck, or van. The costs associated with operating this vehicle are deductible with the required records to prove business usage. If you use the actual cost method, you will need to track the cost of gasoline, oil changes, repairs, insurance, etc. Or you can use the IRS’s standard mileage rate which may be preferred if you put a lot of business-related miles on your vehicle. This deduction is applicable whether you own or are leasing a vehicle. In addition, you can deduct any business-related parking fees, tolls, and public transportation costs that don’t include your commute from home.
Contract labor (line 11)
If you made payments to independent contractors for things like a logo or website design or say you’re a contractor that hires subcontractors to perform work, those payments are deductible. Many small businesses also use subcontractors to meet their labor needs. The cost of this contracted labor is also deductible (as long as you issue a Form 1099-MISC or 1099-K). There are rules regarding the difference between a contractor versus an employee (covered under wages line 26). You can refer to this explanation from the IRS if you have questions.
Depreciation and section 179 expense deduction (line 13)
Items such as ladders, cement mixers, compressors, and other heavy machinery that are expected to last more than one year are considered business assets. Since it is expected that you will continue to use these items for multiple years, they must depreciate over time. This means, each year you claim a portion of them on your taxes, their remaining value will decrease. For example, if a cement mixer costs $80,000 and has a depreciation life of 10 years, each year you will need to remove $8,000 from its value when you claim it (this calculation is straight-line depreciation, but there are other methods that can be used). Additional guidance regarding section 179 depreciation rules can be found here.
Mortgage (line 16a)
If you have a home office, a portion of your personal expenses are deductible as a business expense. As long as the home is used regularly and exclusively as the principal place of business. The deduction includes both direct and indirect costs (e.g., painting a home office, the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence). For additional information regarding home office deductions please refer here.
Legal and professional services (line 17)
Legal and accounting fees, such as paying an accountant to handle your invoices or taxes as well as any attorney fees, are tax-deductible. However, this deduction does not apply to employees that perform these services for you. Those would be included under Wages (line 26).
Office expense (line 18)
You should include office supplies such as postage here. However, you can also deduct the various licensing fees that you pay for services and software like STACK!
Vehicles, machinery, and equipment (line 20a)
Your construction company can write off the rental or lease payments for any equipment it rents or leases during the fiscal year if that equipment is used solely for business purposes. For example, any drills, hammers, saws, wheelbarrows and other equipment used during the building process are tax-deductible. Additionally, any maintenance that current equipment requires is deductible. Materials used in the building process are not deductible, however. For instance, your construction company cannot deduct the cost of nails for the year. Keep all receipts for your equipment in the event that you are audited by the IRS.
Other business property (line 20b)
If you rent a commercial space for your business or use part of your rental home for office space, the rent is deductible. The deductible amount for your home space is determined by the percentage of which is used for work.
Repairs and maintenance (line 21)
The cost of regular repairs and maintenance are fully deductible, as long as they aren’t adding value.
Supplies (line 22)
Any costs for standard replaceable supplies that you use in the course of your work can be deducted. This could include items like pencils, paper, tools, and other small equipment that your business does not capitalize as an asset. Deductible supplies does not include materials purchased for building.
Taxes and licenses (line 23)
Business taxes (e.g., your share of FICA if you have employees) can be deducted. As well as some other government regulated taxes or professional licenses and permit fees.
Travel (line 24a)
If you or your employees travel out of town on business (e.g., visiting a client, vendor, job site, or tradeshow) the cost of transportation, lodging, tips for services, baggage fees, shipping costs, etc. are fully deductible. This does not include local commuting costs.
Deductible meals (line 24b)
You can make meal deductions for business travel or when entertaining a client. You can deduct up to 50% of the meal expense, which includes sales tax and gratuity. Meals considered as part of entertaining a client must include at least one client and the meeting must include a business activity either directly before, during, or after the meal.
Utilities (line 25)
Utilities such as electricity for your facility is fully deductible. Other costs can include your mobile phone or landline as long as it is not your home phone.
Wages (line 26)
If your construction business includes employees, then their wages can also generally be deducted. This consists of any salaries, commissions, or bonuses. Owners are not considered employees.
Keeping reliable documentation is key in order to claim any of the above tax write-offs. So it’s important to stay organized and keep track of all of your documentation throughout the year! Not only does your STACK purchase (as well as your renewal) qualify as a construction business tax deductible, but we can also help you store and organize your project documents! To learn more about STACKs software and its capabilities create a free account and contact us today!
Disclaimer: This is article is for informational purposes only and should not serve as tax, legal or accounting advice. Readers should consult an accounting or tax professional regarding their financial situation.
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