10 Tax Deductions Contractors Forget (and What It Costs You)

Every year I review dozens of tax returns from contractors and subcontractors, and I see the same pattern: legitimate deductions the client never took simply because they didn't know they existed or didn't have the documentation ready.

I'm IRS-certified under the Annual Filing Season Program (AFSP) and my PTIN is active. What follows is practical information, not personalized tax advice — for that, we'd need to look at your specific situation. But this list is a solid starting point.

1. Mileage

The most forgotten one. The IRS lets you deduct $0.70 per mile in 2026 when you drive for work (not from home to your main office, that doesn't count).

What does count:

• Driving between job sites.
• Going to buy materials.
• Client meetings.
• Visits to your CPA, bank, supplier, inspector.

What it costs you to skip it: a contractor who drives 200 miles/week between sites loses $7,280 in deductions per year ($0.70 × 200 × 52). In the 22% bracket, that's ~$1,600 in extra taxes.

What you need: a log (a free app like MileIQ or a notebook) with date, destination, purpose, and miles.

2. Tools and equipment

Any tool used exclusively for the business is deductible:

• Hand tools: immediate deduction.
• Tools/equipment over $2,500 (for example, a mini-excavator): choose between standard depreciation or Section 179 to deduct the full amount in year one (within limits).

Don't forget: cords, batteries, drill bits, branded work clothing, safety boots.

3. Cell phone and data plan

If you use your phone for client calls, uploading job photos, receiving invoices, etc., you can deduct the % of business use. If you have a dedicated work line: 100%. If shared with personal use: typically 50-70%.

4. Home office

If you have a dedicated space in your home where you do paperwork, client calls, accounting — and it's used exclusively for the business — you can deduct:

• A fraction of mortgage/rent proportional to square footage.
• Utilities (electric, internet, gas) at the same proportion.

There are two methods: simplified ($5 per square foot, max 300 sqft = $1,500) or detailed (calculate actual expenses). The detailed method gives more, but requires more documentation.

5. Business insurance

• General liability insurance.
• Workers' comp.
• Commercial auto if you have business vehicles.
• Bonds (performance, surety).

All 100% deductible as business expenses.

6. Subcontractor payments (with their 1099s)

If you paid a subcontractor more than $600 during the year and issued Form 1099-NEC, that payment is 100% deductible. But careful: if you didn't issue the 1099, the IRS can deny the deduction and fine you on top.

Rule: every January, issue 1099-NEC to every sub or vendor you paid more than $600 during the year.

7. Education and certifications

Courses, books, subscriptions to technical publications, contractor license renewals, OSHA certifications, lead-safe certifications, equipment operator training.

Tip: the cost of studying for new certifications is deductible if it improves your existing business. It's not deductible if it trains you for a completely different profession.

8. Business software and subscriptions

• QuickBooks, Xero, FreshBooks.
• Project management (Buildertrend, CoConstruct, Procore).
• Adobe, Microsoft 365, Google Workspace.
• Measurement apps, jobsite photography, time tracking.

Small monthly payments that add up to hundreds of dollars a year.

9. Client / project meals

50% deductible when you eat with a client, prospect or subcontractor for a business reason. You need: date, location, with whom, purpose.

Meals while working away from your area: if you're away from your "tax home" for more than a day for work, meals are 50% deductible under travel expenses rules.

10. Tax prep fees and professional consulting

What you pay a bookkeeper, CPA, business attorney, financial advisor — deductible. Curiously, people forget to deduct this because it feels "personal", but if it's related to your business, it goes on Schedule C.

Bonus: Health insurance (self-employed)

If you're self-employed (Schedule C, single-member LLC, S-Corp with your own W-2) and pay your own health insurance:

• Premiums are 100% deductible against your income (not on Schedule C, but as an adjustment to income on the 1040).
• Covers you, your spouse, and dependents.
• Only applies if you didn't have access to a subsidized employer plan (yours or your spouse's).

The most expensive mistake: poor documentation

The IRS will accept all these deductions — as long as you can prove them. If you get audited and don't have:

• Legible receipts.
• Dates and purposes.
• Mileage log.
• Issued 1099s.

They'll deny them and charge you the tax + interest + penalties.

What I recommend:

1. A separate bank account just for the business. Zero personal expenses.
2. A business credit card (same reason).
3. Monthly bookkeeping (me or you) — don't wait until March to organize the year.
4. Photo + description of every receipt right away (free apps: Expensify, Evernote, even WhatsApp to yourself).

How to know if you're leaving money on the table

If your last return was prepared by:

• Online software without anyone asking you questions.
• A preparer who finished in 30 minutes.
• Yourself, without a tax background.

You're probably losing between $2,000 and $8,000 a year in deductions. The review takes an hour.

If you'd like to look at your specific situation, book a consultation. I'm an IRS AFSP certified preparer with an active PTIN, specialized in construction.