Many professionals in the construction industry are classified as independent contractors, meaning they would file tax returns as self-employed professionals. This means they don’t have taxes withheld from their paychecks in the way that standard employees do. As such, preparing their taxes can be a bit more challenging for them than for traditional employees.
Whether you yourself are a self-employed construction contractor or run a construction company that relies on the work of independent contractors, it is important for you to have an understanding of how taxes work for people who fall under that category.
Here are a few tips:
Contractors can deduct transportation costs if they are related to the job—trips between job sites and any other business-related trips would qualify for tax deductions. However, you cannot deduct the costs associated with commuting between your home and your job site.
There are two methods of deduction for transportation expenses. The first is the standard mileage rate, which is the simplest method available. Calculate the number of miles used for business by the rate set by the IRS for the tax year, and you have your deduction rate.
The second is the actual cost method, which involves deducting every single business-related transportation expense individually. This requires you to keep much more thorough and accurate records of all your transportation, which might not make it feasible.
The use of public transportation is also be deductible, but again, only when going between job sites.
If your construction company made any payments to subcontractors who also worked on a job site with you, those payments are tax deductible. Those contractors will be considered “independent contractors” for tax purposes as well.
The costs of paying for insurance premiums related to running your business is deductible. This includes workers’ compensation insurance, property insurance and general liability insurance, but does not include personal health, auto or disability insurance.
Equipment and supplies
Any costs for equipment or supplies used in the course of a job can be deducted. For construction companies and contractors, it’s important to note that this refers to standard replaceable supplies—not any materials you use as part of any actual construction work. The equipment can also be written off only if you use it solely for business purposes. You can’t qualify for a deduction on a purchase for a big saw if you also take it home regularly and use it for your home DIY projects.