Contractor Tax Deductions: What You Can Write Off
Are you paying tax on money your business already spent?
Most contractors are. Nobody sorted their spending the way the tax code sorts it.
A deduction is any cost the IRS lets you subtract from your income before it figures your tax. The rule behind almost all of them is simple. The cost has to be ordinary for your trade and necessary to run the business. That's the standard in Section 162 of the tax code, and it's broader than most owners think.
Here's the catch. Not every deduction saves you the same amount. Some lower two taxes. Some lower one. And California doesn't agree with the IRS on several of the big ones.
So let's sort them into three buckets.
Bucket 1: The Business Bucket
These are the costs of running the business itself. On a sole proprietor's return they go on Schedule C.
Why do they matter most? Because they lower two taxes at once. They cut your income tax. They also cut your self-employment tax. Self-employment tax is the Social Security and Medicare tax you pay on your own earnings. It runs 15.3%, and it hits your first dollar of profit.
That means every dollar in this bucket saves you more than a dollar in any other bucket.
Your truck. You can deduct your truck two ways. One is the IRS standard mileage rate, a flat amount per business mile. The other is your actual costs: gas, tires, repairs, insurance, and depreciation. A heavy work truck that burns fuel often does better on actual costs. Either way, the IRS requires a record of your business miles. No log, no deduction.
Your tools and equipment. Small purchases can be written off the year you buy them. The IRS lets you expense items up to $2,500 each (per item or per invoice) under a rule called the de minimis safe harbor. Bigger equipment can often be written off in year one too, under Section 179. The key is booking the purchase as equipment.
Materials and job supplies. Pipe, wire, fittings, sod, pavers. Whatever goes into the job. These are deductible, but they need to be tracked separately from your tools. Otherwise you can't tell what a job really cost you.
Your subcontractors. What you pay a true subcontractor is deductible. You also have to file a Form 1099-NEC for each sub you pay above the IRS reporting threshold. Get their W-9 before the first payment.
Your home office. If you run the business from a dedicated space at home, part of your home costs can come off. The space has to be used regularly and only for the business. Your kitchen table doesn't count. A spare room you use only for bids, invoices, and scheduling can.
Your phone, software, and field apps. The business share of your phone bill. QuickBooks. Jobber, Housecall Pro, or ServiceTitan. The card processing fees those apps take out of every payment, too. Those fees are easy to miss, because they never show up as a bill.
Licenses, insurance, and bonds. Your contractor's license renewal. General liability. Commercial auto. Your license bond. Workers' comp if you carry it. All deductible.
Training. Continuing education to keep your license, or a class that sharpens a skill you already use in the business.
Bucket 2: The Owner Bucket
These deductions belong to you as the owner. They go on the front page of your Form 1040.
Why does that matter? Because they lower your income tax only. They do not lower your self-employment tax. Still worth every penny. Just smaller per dollar than Bucket 1.
Half of your self-employment tax. The IRS lets you deduct half of the self-employment tax you paid. Your preparer should do this automatically. Check that they did.
Your health insurance. If you're self-employed and buy your own health insurance, you can usually deduct the premiums. That includes coverage for your spouse and kids. One condition: you can't take it for any month you were eligible for a plan through an employer, including your spouse's.
Your retirement account. A SEP-IRA or a Solo 401(k) lets you put away money for yourself and deduct it now. For a lot of contractors, this is the biggest deduction they aren't taking.
The QBI deduction. QBI stands for Qualified Business Income. It lets many business owners deduct up to 20% of their business profit on their federal return. Congress made it permanent in 2025. There's no receipt for it. It's figured on your return. You need clean books, because the number it starts from is your profit.
Bucket 3: The California Bucket
If you're in California, here's the part most online lists skip. California has its own tax rules, and it doesn't follow the IRS on several big deductions.
Big equipment. The IRS lets you write off very large equipment purchases in year one, through Section 179 and bonus depreciation. California caps Section 179 at $25,000 (phase-out starts at $200,000 of equipment), and it doesn't allow bonus depreciation at all. So a $60,000 truck can be a year-one write-off on your federal return and a multi-year write-off on your California return. That's two sets of depreciation records. Your books need to keep both.
The QBI deduction. California doesn't allow it. Your state return is figured on your full profit.
Your helper. This one is a trap that can wipe out a deduction. Under California Labor Code 2750.5, a worker doing licensed work is presumed to be your employee. To count as a real subcontractor, the worker has to hold a contractor's license. Pay an unlicensed helper on a 1099 and the state can treat him as an employee. The back payroll taxes and penalties land on you.
The Rule Behind Every Bucket
You can only deduct what your books can prove.
The IRS requires records that back up every deduction you take. For your truck, that means a mileage log kept as you go. For everything else, it means a receipt or statement that shows what you bought, when, and that it was for the business.
One more thing. Most small contractors keep their books on a cash basis. That means a cost counts in the year you pay it. A charge on your business credit card counts the day you make the charge, not the day you pay the card off. That gives you a little room in December. Buy the equipment you were going to buy in January a few weeks early, and the write-off moves into this year.
What doesn't count:
Your daily commute from home to the first job, unless your home is your main place of business
Regular clothes, even if you only wear them to work (safety gear like steel-toe boots and hard hats is different)
Traffic tickets and government fines
The personal share of anything you also use for the business
Key Takeaway: The deductions in Bucket 1 save you the most, and they're decided in your bookkeeping, months before anyone opens your tax return. Get the categories right all year and April takes care of itself.
At Civita Tax Solutions, we help home service business owners save money on taxes with all-in-one accounting. We handle your bookkeeping, advisory, and tax filing. You focus on the business. We handle the finances.
Not sure which write-offs you're missing? Take our free 3-minute Contractor Write-Off Diagnostic. Then see what an S corp could save you with the Tax Savings Calculator.
Work in a specific trade? See how we handle bookkeeping and taxes for plumbers, HVAC contractors, electricians, landscapers, and painters.
