Working in the construction industry has many perks, one of the biggest of which is the tax deductions. Come tax time, most nine-to-fivers are unable to deduct anything more than home office expenses.
A construction worker, on the other hand, can deduct everything from his work boots and hard hat to vehicle-related costs. Whereas others dread the tax deadline, construction contractors look forward to it.
Here are five most common tax deductions you, as a construction contractor, may be missing out.
1. Tools of the trade
Construction equipment is expensive. Fortunately, you can deduct the cost of most tools. Your construction expenses list may already include a cement mixer and scaffolding, but what about the smaller instruments? Some tools you may have overlooked include the following:
- Supplies and materials
- Small tools that last less than a year (think hammers, wrenches, saws and drills).
Despite popular belief, you can claim the same expenses each year. However, you need to account for depreciation. For example, say your cement mixer costs $10,000 brand new. It has a depreciation life of 10 years.
Each year you will need to remove $1,000 from its value when you itemize it. On year five, you can claim $5,000. If the equipment is still in use by nine, you can claim $1,000. By year 10, it’s time to buy a new cement mixer.
2. Work gear
Boots, hard hats, tool belts and even blue jeans are all standard tax deductions for construction workers. You need steel-toed boots to protect your feet. Don’t forget hard hats, goggles and gloves are needed to protect your body. Blue jeans may need to be replaced every few months due to excessive wear.
Take advantage of your labor-intensive work. Itemize your uniform. Many employers reimburse their workers for work gear. If yours doesn’t, take a deduction.
Training for, joining and maintaining a job in construction is not just hard work—it’s expensive. Don’t discount all the money you’ve invested in your career. These are some tax-deductible fees you may have paid into:
- Trade school tuition
- Licensing fees, including renewal
- Subscriptions to trade journals
- Memberships to construction unions, business associations and other organizations
4. Travel costs
It’s not uncommon for construction workers to make overnight trips. If you’re asked to travel for work, you can deduct most travel-related expenses. Some deductible costs may include parking fees, toll fees, hotel charges and meals.
Deducting these items can add up to big returns at tax time. Bear in mind that itemizing a trip to Disneyland may raise a red flag for the IRS. Stick to the necessities, and you’ll be fine.
Mileage is by far the most significant construction worker tax write off. Whether you’re an employee or an independent contractor, you should be reimbursed for the miles you put in. While you cannot deduct your morning commute, you can deduct the miles you log between multiple job sites and other business-related trips.
There are two methods for calculating mileage reimbursement for construction workers: the standard mileage method and the actual expenses method.
The standard mileage method:
When it comes to using personal vehicles for work travel, there are several expenses for which workers need to account. To simplify filing, the IRS combined the most common expenses into a single rate per mile. Expenses accounted for include the following:
- Maintenance and repairs
- Lease payments
If you choose to use this method, multiply the miles traveled by the standard rate set (54.5 cents per mile in 2018).
The actual costs method:
The standard mileage method combines all travel-related costs. The actual costs method itemizes each expense by itself. If you use this method, you must have accurate records of each cost you deduct. Records may include receipts, mile logs, reports, check stubs, parking tickets and more.
Calculating depreciation can be difficult under the actual costs method. The IRS recommends the “straight line” method, a simplified technique for calculating vehicle value.
Divide the total cost of your vehicle by the number of years it has been in service. The total is the current value of your car. You can claim your vehicle for a maximum of seven years.
Tracking software records your miles and creates reports for you. By using such software, you can eliminate one more tax-time burden.
Know the difference between ordinary and necessary expenses
Are you hesitant to take a deduction? Think about whether an expense is ordinary or necessary.
An ordinary expense is one you would have no matter the field in which you worked. A necessary expense is one that helps you in your construction job or business. If it’s required, claim it.
Tax deductions for construction workers are plentiful. Make tax time a little easier on yourself this year and itemize common expenses. You deserve it.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.