Top 5 Tax Deductions Every Construction Business Should Know to Maximize Savings

Running a construction business comes with unique challenges, including managing complex finances and maximizing tax savings. For construction companies, staying informed about available tax deductions is critical to reducing your taxable income and improving your bottom line. At Serenity Solutions, we help construction businesses navigate their financials and take full advantage of tax-saving opportunities. Here are the five most commonly used tax deductions for construction businesses and how they can benefit you.

1. Vehicle and Equipment Expenses

Construction businesses rely heavily on vehicles and equipment, making these significant deductible expenses. Whether it’s trucks, vans, heavy machinery, or smaller tools, these costs can add up quickly. Fortunately, the IRS allows you to deduct expenses associated with:

• Depreciation: Equipment used for your business typically qualifies for depreciation deductions over several years. The Section 179 deduction allows you to deduct the entire purchase price of certain equipment in the year it was purchased, rather than over time.

• Fuel and Maintenance: The cost of fuel, repairs, and routine maintenance for vehicles and equipment used in your business is fully deductible.

• Mileage: If you use your personal vehicle for business purposes, you can claim a deduction based on the miles driven for business, using either the standard mileage rate or actual expenses.

Tip for Construction Businesses: Keep detailed records of mileage and maintenance to ensure you can claim the full deduction. Using bookkeeping software or working with a professional bookkeeping service can help you track these expenses accurately.

2. Home Office Deduction

If you operate your construction business from a home office, you may be eligible for the home office deduction. This deduction applies to a portion of your home expenses if you have a dedicated workspace that is used regularly and exclusively for your business.

Qualifying expenses for this deduction include:

• Rent or mortgage interest

• Utilities (electricity, water, internet)

• Property taxes

• Homeowner’s insurance

• Maintenance and repairs

You can claim this deduction using either the simplified method, which allows a deduction of $5 per square foot of your home office (up to 300 square feet), or the regular method, which involves calculating the actual expenses of your home office as a percentage of your home’s square footage.

Tip for Construction Businesses: Make sure your home office meets the IRS’s “exclusive use” test, meaning it must be used solely for business purposes.

3. Subcontractor and Labor Costs

Labor is often one of the largest expenses for construction businesses. Fortunately, payments made to subcontractors and wages paid to employees are fully deductible. This includes:

• Subcontractor payments: If you hire subcontractors to complete specific jobs, the payments made to them are deductible as business expenses. Be sure to issue 1099 forms to subcontractors if you pay them more than $600 during the tax year.

• Employee wages: Wages, salaries, and bonuses paid to employees are deductible, along with benefits such as health insurance, retirement contributions, and paid leave.

• Workers’ compensation insurance: Premiums paid for workers’ compensation insurance are also tax-deductible.

Tip for Construction Businesses: Keep detailed records of payments to subcontractors and employees, and ensure that all 1099 and W-2 forms are properly filed.

4. Materials and Supplies

For construction companies, the cost of materials and supplies is a major business expense and is fully deductible. This includes raw materials, tools, and other supplies used directly on construction projects. Whether you’re purchasing lumber, concrete, plumbing supplies, or roofing materials, you can deduct these costs as part of your business expenses.

Additionally, supplies that are indirectly related to your work, such as office supplies or safety gear, may also qualify as deductible expenses.

Tip for Construction Businesses: Proper inventory management and tracking of materials is essential to ensure all deductible expenses are accounted for, especially when projects span multiple tax years.

5. Insurance Premiums

Construction businesses face significant risks, and as a result, they often carry several types of insurance. The good news is that many of these insurance premiums are deductible, including:

• General liability insurance: This protects your business against third-party claims of bodily injury or property damage.

• Workers’ compensation insurance: Required in most states, this insurance covers your employees in the event of a workplace injury or illness.

• Commercial property insurance: This covers your business’s physical assets, such as tools, equipment, and buildings, in the event of damage or loss.

• Commercial auto insurance: This covers vehicles used for business purposes.

Tip for Construction Businesses: Review your insurance policies annually to ensure you’re adequately covered while also keeping an eye on premiums that can reduce your taxable income.

How Serenity Solutions Can Help

At Serenity Solutions, we specialize in helping construction businesses manage their finances and take full advantage of available tax deductions. Whether you need assistance with tracking expenses, filing 1099 forms, or ensuring compliance with IRS regulations, we’re here to help. Our professional bookkeeping and tax preparation services ensure that you’re maximizing tax savings while staying organized year-round.

Contact Serenity Solutions today to learn how we can help your construction business save money and improve financial efficiency.