If you’re a general contractor, chances are you spend your days managing projects, coordinating crews, and most importantly, keeping clients happy. But when tax season rolls around, things can get complicated fast. Between tracking expenses and dealing with subcontractors, it’s easy for tax planning to fall to the bottom of your list.
At Tavola Group, we specialize in year-round tax and accounting services for contractors, and we know the tax code isn’t exactly user-friendly. The good news? With a few smart strategies and a proactive plan, you can take control of your taxes.
Let’s dive into some key tax tips for general contractors that can help you stay compliant, reduce stress, and save money.
Separate Business and Personal Finances
One of the most important things any contractor can do, especially if you’re a sole proprietor or running a small crew, is to set up a separate business bank account and credit card. Mixing personal and business expenses is a recipe for trouble. Not only does it complicate your bookkeeping, but it also makes it harder to substantiate deductions in the event of an audit.
We always recommend that our clients keep clean records by running all business income and expenses through dedicated accounts. You’ll thank yourself at tax time and so will your CPA.
Track Every Business Expense—Yes, Every One
General contractors have a wide range of deductible expenses, from tools and equipment to mileage and subcontractor payments. The problem is, many of those small daily costs go untracked and those missed deductions add up fast.
Some commonly overlooked deductions include:
- Work truck mileage or lease payments
- Small tools and materials
- Protective gear and uniforms
- Job site supplies
- Continuing education or license renewals
- Cell phone use (for business)
Use an expense tracking app or accounting software to log expenses in real time.
Take Advantage of Section 179 and Bonus Depreciation
If you’re investing in new equipment there are some powerful tax tools that can help you write off those costs faster. Section 179 allows you to immediately deduct the full cost of qualifying equipment and vehicles (up to a limit), instead of depreciating it over several years. Bonus depreciation offers another opportunity to accelerate write-offs.
Timing matters here. Buying equipment before year-end can create significant tax savings, if you plan ahead. We help contractors time these purchases to maximize their benefit and avoid cash flow surprises.
Choose the Right Business Structure
Your business structure plays a big role in how much you pay in taxes. Whether you’re a sole proprietor, LLC, S-Corp, or something else, each structure has different implications for self-employment taxes, income reporting, and legal liability.
We often help general contractors transition from sole proprietorship to S-Corp to reduce self-employment tax, a strategy that can save thousands annually. But it’s not always the right move for everyone.
File 1099s for Subcontractors
Hiring subcontractors is a normal part of running a contracting business, but it also comes with reporting requirements. If you paid any subcontractor $600 or more during the year, you’re required to issue them a Form 1099-NEC and report it to the IRS.
Failure to do this can result in penalties, and it’s one of the IRS’s favorite audit triggers. The fix? Collect W-9s before you pay anyone, track payments throughout the year, and file your 1099s on time.
We help our contractor clients stay ahead of this by managing vendor paperwork and deadlines for them.
Consider the Percentage-of-Completion Method for Long-Term Jobs
If you work on long-term projects (those that span multiple tax years), the IRS may require you to use the percentage-of-completion accounting method to report income. This means recognizing revenue as the project progresses not just when you get paid.
It can complicate things from a tax standpoint, but with the right support, it’s manageable. The key is consistent job costing and accurate reporting. If this method applies to your business, make sure you’re working with a tax team that understands how to navigate it effectively.
Don’t Forget Estimated Quarterly Taxes
If you’re a self-employed general contractor, taxes aren’t just a once-a-year event. You’re responsible for paying estimated quarterly taxes to avoid underpayment penalties.
This includes:
- Federal income tax
- State income tax (if applicable)
- Self-employment tax
Many contractors underestimate what they owe, which leads to big surprises at year-end. We help our clients set aside funds consistently and calculate payments based on their real-time earnings, not last year’s guesswork.
Keep Mileage Logs and Travel Records
If you’re frequently driving to job sites, making supplier runs, or attending client meetings, you may be eligible for valuable vehicle-related tax deductions, either through the standard mileage deduction or by deducting actual vehicle expenses. However, proper documentation is key. To support your claim, you’ll need to maintain a detailed mileage log that includes the date of each trip, the purpose, your starting and ending mileage, and the total miles driven. Keeping accurate records not only ensures compliance but also helps you maximize your deductions come tax time.
Plan for Retirement and Reduce Taxable Income
One tax strategy that often goes overlooked by general contractors is setting up a retirement plan for yourself and your employees if you have any.
Options like a Solo 401(k) or SEP IRA allow you to reduce your taxable income while building future wealth. Contributions are tax-deductible, and in high-income years, this can be a major money-saver. If you’re not already taking advantage of this, we can walk you through setup and contribution strategies based on your income goals.
Work with a Tax Advisor Who Understands Construction
At the end of the day, the best tax tip for general contractors is this, don’t do it alone.
The construction industry has unique rules, seasonal cash flow challenges, and reporting requirements that many general tax preparers simply don’t understand. A tax advisor who specializes in construction can help you:
- Identify deductions you’re missing
- Stay compliant with IRS rules
- Plan for major purchases or projects
- Choose the best structure for your business
- Avoid costly mistakes that lead to audits
That’s exactly what we do at Tavola Group. We go beyond tax filing, we offer year-round planning to keep you profitable and prepared.
If you’re ready to take control of your taxes, book your free tax planning consultation with us today. We’ll review your current strategy, help you spot opportunities for savings, and create a plan that works for your unique business goals. Let’s take the guesswork out of taxes, so you can get back to building.
