Top Tax Deductions for Contractors in 2026

Don't Pay More Than You Have To

The average contractor overpays taxes by $5,000-$15,000 per year simply because they don't know what they can deduct.

This guide covers the major deductions available to contractors. Consult with a tax professional for your specific situation.

Disclaimer: This is educational information, not tax advice. Tax laws change, and your situation is unique. Work with a qualified CPA or tax advisor.

Vehicle Expenses

Your truck is likely your biggest deductible expense.

Two Methods:

Standard Mileage Rate (2026): $0.70/mile

• Track all business miles
• Simple to calculate
• Generally better for newer, fuel-efficient vehicles

Actual Expense Method:

• Gas, oil, repairs, insurance, registration
• Depreciation
• Loan interest
• Requires more record-keeping
• Often better for older or expensive vehicles

What Counts as Business Miles?

• Driving to job sites ✓
• Trips to suppliers ✓
• Bank, post office, client meetings ✓
• Commuting to your regular office ✗ (personal)

Pro Tip: Use a Mileage App

Apps like MileIQ or Everlance automatically track your miles. The IRS requires contemporaneous records—don't try to recreate your mileage at tax time.

Home Office Deduction

If you use part of your home exclusively for business, you can deduct it.

Two Methods:

Simplified Method: $5/sq ft (max 300 sq ft = $1,500)

• Easy to calculate
• No depreciation recapture

Regular Method:

• Percentage of mortgage/rent, utilities, insurance, repairs
• More paperwork but often larger deduction
• Subject to depreciation recapture when you sell

Requirements:

• Space must be used regularly and exclusively for business
• Must be your principal place of business OR where you meet clients
• A garage workshop counts if you meet clients there

Tools and Equipment

Everything you need to do your job is deductible.

Section 179 Deduction (2026)

Deduct the full cost of equipment in the year you buy it (up to $1,220,000).

Common Deductions:

• Power tools
• Hand tools
• Diagnostic equipment
• Safety gear
• Ladders, scaffolding
• Toolboxes, organizers
• Uniforms and work boots

Vehicles and Equipment

For vehicles over 6,000 lbs GVWR, you may qualify for the "heavy SUV" rule—potentially deducting up to $30,500 in year one.

Software and Technology

Your business software is fully deductible:

• EstimateBuilderPro subscription ✓
• Accounting software (QuickBooks, etc.) ✓
• CRM software ✓
• Office productivity (Microsoft 365, Google) ✓
• Industry-specific apps ✓
• Website hosting and domain ✓
• Phone and internet (business %) ✓

Insurance Premiums

All business insurance is deductible:

• General liability insurance
• Workers' compensation
• Commercial auto insurance
• Professional liability
• Tools and equipment insurance
• Business property insurance

Health Insurance

If you're self-employed, you can deduct 100% of health insurance premiums for yourself, spouse, and dependents. This is an "above the line" deduction—you don't need to itemize.

Retirement Contributions

Self-employed retirement plans offer massive deductions:

SEP-IRA

• Contribute up to 25% of net self-employment income
• Max: $69,000 (2026)
• Easy to set up and manage

Solo 401(k)

• Employee contribution: $23,000 (plus $7,500 catch-up if 50+)
• Employer contribution: up to 25% of compensation
• Total max: $69,000 (+ catch-up)
• More complex but more flexible

Example:

Net income: $150,000 SEP-IRA contribution: $37,500 Tax savings (32% bracket): $12,000

Business Meals

Meals with clients or while traveling for business are 50% deductible.

Deductible:

• Lunch with a client discussing a project
• Dinner while traveling for business
• Meals during business conferences

Not Deductible:

• Your everyday lunch
• Meals while commuting
• Lavish or extravagant meals

Documentation Required:

• Receipt
• Date and location
• Business purpose
• Who attended
• What was discussed

Continuing Education

Investing in yourself is deductible:

• Trade certifications and licenses
• Continuing education courses
• Industry conferences and seminars
• Business books and publications
• Training materials
• Coaching and consulting fees

Marketing and Advertising

All legitimate marketing expenses are deductible:

• Website design and maintenance
• Business cards and brochures
• Vehicle wraps and signage
• Online advertising (Google, Facebook)
• Trade show booths
• Sponsorships
• Promotional items

Professional Services

Fees paid to professionals are deductible:

• Accountant/CPA fees
• Legal fees (business-related)
• Bookkeeping services
• Consultant fees
• Payroll service fees

Qualified Business Income Deduction (QBI)

The 20% QBI deduction may allow you to deduct 20% of your net business income.

Basic Rule: If taxable income is under $191,950 (single) or $383,900 (married), you can deduct 20% of qualified business income.

Example: Net business income: $100,000 QBI deduction: $20,000 Tax savings (24% bracket): $4,800

Commonly Overlooked Deductions

1. Bank fees - Business account fees, merchant processing fees
2. Subscriptions - Trade magazines, industry associations
3. Licenses and permits - Business license, contractor's license
4. Interest - Business loans, credit cards (business use %)
5. Bad debts - Customers who don't pay
6. Startup costs - If you started your business this year

Record-Keeping Best Practices

The IRS requires documentation. Make it easy:

1. Use a business bank account - Separates business from personal
2. Get a business credit card - Automatic record of expenses
3. Save receipts digitally - Apps like Expensify or Dext
4. Track mileage daily - Don't try to recreate later
5. Keep records for 7 years - IRS can audit back 3-6 years

Work With a Professional

This guide covers common deductions, but tax law is complex. A good CPA or tax advisor can:

• Find deductions you're missing
• Ensure you're compliant
• Plan for future tax savings
• Represent you if audited
• Pay for themselves many times over

Key Takeaways

1. Vehicle expenses are usually your largest deduction
2. Home office is often overlooked—don't miss it
3. Tools and equipment can be fully deducted in year one
4. Retirement contributions offer huge tax savings
5. Keep meticulous records throughout the year
6. Work with a tax professional

Track Everything with EstimateBuilderPro

Our software integrates with accounting tools to help you:

• Track business expenses
• Categorize for tax purposes
• Generate year-end reports
• Make tax time easier

Start your free trial and get organized for next tax season.