Construction workers are not your typical 9 to 5 employees. Rather than reporting to an office every day, they drive to construction sites with a truck full of supplies in tow. In some cases, builders, tradesmen, and highly-skilled professionals will work on more than one jobsite in a single day. Point is, construction workers are constantly on the move, which means they use their vehicle for business purposes. Beyond taking the mileage deduction, professionals in the construction industry can deduct several other business expenses. Read ahead to see the most common tax deductions available in 2022.
As independent contractors, construction workers don’t normally pay Social Security and Medicare taxes throughout the year. Instead, they must pay self-employment tax when tax season arrives. Most taxpayers assume this means you’ll pay more in taxes. However, that’s not always the case. There are a number of tax deductions for construction workers to make use of.
Here are the five most common write-offs to consider:
1. Tools and machinery: Construction equipment is one of the biggest expenses you’ll have throughout your career as a construction worker. Fortunately, you can deduct the cost of small to large tools, including ladders, supplies, hammers, wrenches, drills, and more.
2. Work gear: In order to perform daily tasks in a safe manner, construction workers are required to wear a certain attire. This includes steel-toed boots, hard hats, and tool belts for easy access to basic supplies. On top of that, they’ll need to wear protective gear, which consists of goggles, gloves and other accessories. All these items can be written off on your tax return.
3. Education and licensing: If you decide to invest further in your career, don’t hesitate to deduct education or licensing costs. You can also write-off memberships to construction unions, business associations, and other recognized organizations.
4. Travel expenses: Construction workers often have to travel long distances to get the job done. In some cases, projects require several overnight trips. Luckily, construction professionals can deduct these travel-costs. Some deductible expenses include parking fees & tolls, hotel stays and meals.
5. Mileage: Among the five most common tax deductions, mileage is by far the most significant write-off. While you cannot deduct your morning commute to work, you can definitely deduct the business miles you log throughout the day. To keep track of business mileage, construction workers should sign up for a mileage tracking app. It’s now the simplest and most efficient way to manage your odometer reading.
Construction workers calculate tax deductions in the same way sales professionals, technicians, and other self-employed individuals do. You simply report any necessary and ordinary business expenses on a Schedule C Form. When it comes to mileage though, you have two options for calculating car-related expenses.
Actual expense method: With this deduction method, you must itemize every car-related expense by itself. To give an example, you can deduct fuel costs for the business use of your vehicle. Other expenses include lease payments, auto insurance, maintenance (such as oil changes and tire rotations), and licensing and registration fees.
Standard mileage rate: The IRS sets a standard mileage rate that combines all travel-related costs in a single tax year. Construction workers often choose this method because they spend hours of their day on the road, mostly traveling between work sites, meetings, and other projects. To calculate the mileage deduction, you take the standard mileage rate for the year and multiply it by the number of business miles traveled.
Now that you can see the advantage of a mileage deduction, there are a few things to point out that could impact your decision. Since construction workers are always on the go, it can be difficult to keep track of business expenses. If you’re looking for the easiest way to snag a tax break, creating a mileage log is your best bet. You can do it the old-fashioned way with a pen and paper or you can download a mileage tracking application on your smartphone.
As a general rule, it’s recommended that construction workers keep track of all business expenses, regardless of the deduction method they choose. This involves gathering receipts, invoices, and other documentation that supports your claims for the tax year. Although you won’t have to send this information to the IRS when you submit your tax return, you’ll want to keep it for your records. Should you be audited, you’ll have all the information you need to dispute any red flags.
The tax experts at MileIQ commonly get asked, “What if I don’t have receipts for everything?''. Typically, the IRS doesn’t give much leeway for inaccurate reporting. If you fail to provide detailed records for necessary and ordinary expenses, you’ll be asked to give an oral testimony and collect any evidence that backs up your tax filing. Oftentimes, taxpayers find themselves in troubled waters if they commonly deduct business expenses without warrantable proof. Any type of misreporting could evidently catch up to you.
If you work in the construction field, check out MileIQ’s guide to mileage tracking for construction workers. We’ll break down everything you need to know about maximizing your tax bill.