Best Tax Deductions for Contractors

You can deduct the business use of a truck or van with either the IRS standard mileage rate or your actual costs (fuel, repairs, insurance, depreciation), multiplied by the business-use percentage. The IRS sets the standard rate each year. If you want the standard rate for a vehicle you own, you generally must choose it in the first year the vehicle is used for business.

Driving from home to a regular workplace is commuting and is not deductible. Driving between job sites, or to a temporary job site, generally is. A mileage log kept as you go is the single best protection for this deduction.

Tools, trailers, compressors and heavy equipment are normally depreciated over several years. Two rules can speed that up. Section 179 lets you elect to expense qualifying property in the year you place it in service, up to an annual limit. Bonus depreciation lets you deduct 100% of the cost of qualified property acquired after January 19, 2025, and it applies after any Section 179 deduction.

Keep the purchase invoice and note the date each item went into service. Business vehicles have their own depreciation limits, so talk to your preparer before you buy a truck for the write-off.

If you use part of your home regularly and exclusively for business, you may deduct it. For many contractors the space qualifies as a principal place of business because it is where the estimates, invoicing and bookkeeping happen and there is no other fixed location for that work.

You can figure it with the regular method (actual home expenses by square footage, on Form 8829) or the simplified method based on a flat rate per square foot, up to a set size. Our SC home office deduction guide walks through both.

Self-employed contractors pay both halves of Social Security and Medicare through self-employment tax, generally once net earnings reach $400. You then deduct one-half of that self-employment tax when figuring adjusted gross income. It does not reduce the self-employment tax itself, but it lowers your income tax. The self-employment tax calculator gives a quick estimate.

Premiums for medical, dental and qualifying long-term care insurance for you, your spouse and dependents can be deducted on Schedule 1, figured on Form 7206. The catch: you cannot take it for any month you were eligible for a subsidized health plan through an employer, including your spouse's employer, even if you did not enroll.

A SEP IRA, a SIMPLE IRA or a one-participant 401(k) lets a self-employed contractor save on a tax-deferred basis. The plans differ in how much you can put in and in the paperwork involved, and the IRS adjusts the contribution limits each year. A one-participant 401(k) often allows the most for a solo owner, while a SEP is the simplest to set up.

Owners of sole proprietorships, partnerships and S corporations may be able to deduct up to 20% of their qualified business income under Section 199A. The deduction is now permanent, and income-based limits apply at higher earnings. It is taken on your personal return and does not require you to spend anything, which makes it one of the most valuable deductions on this list.

What you pay subs and helpers who are not employees is a deductible business expense. Paying them also creates a reporting job: for payments made after 2025, you file Form 1099-NEC for each non-employee you pay $2,000 or more during the year (the threshold was $600 before). Get a Form W-9 from each sub before the first payment. If you are unsure whether a worker is a contractor or an employee, read employee vs. contractor.

Premiums for general liability, commercial auto, tools and equipment coverage, and workers' compensation for employees are ordinary business expenses. So are surety bond premiums tied to your contracts. Keep the declarations pages with your tax records.

State contractor license fees, city and county business licenses, and permit fees paid for your business are deductible too. Permit costs that are part of a client's job are usually billed through as a job cost. For the local licensing side, see our guide to SC business licenses.

The business share of your cell phone plan, estimating and invoicing software, and a tablet used on job sites can be deducted. If the phone is also personal, deduct only the business percentage. The IRS does not allow a deduction for the basic service of the first landline into your home.

When a job keeps you away from your tax home long enough that you need to sleep there, travel costs become deductible: lodging, transportation and 50% of meals. Self-employed contractors can use the federal standard meal allowance instead of saving every meal receipt, but lodging must be based on actual cost. Day trips to a local job site do not count as travel away from home.