15 Tax Deductions Every Contractor Should Know in 2025

Most contractors overpay their taxes. Not because they're doing anything wrong — but because they don't know what they can deduct.

As a self-employed contractor, you're entitled to deduct legitimate business expenses from your taxable income. Every dollar you deduct is money you don't pay taxes on.

Here are 15 deductions that contractors commonly miss — organized by category so you can make sure you're capturing everything.

⚠️ Important Disclaimer

This article is for educational purposes only and isn't tax advice. Tax laws change, and your situation is unique. Always consult a qualified tax professional for advice specific to your business.

Vehicle & Travel Deductions

1 Vehicle Mileage

If you use your vehicle for work, you can deduct either actual expenses (gas, maintenance, insurance) OR the standard mileage rate (67 cents per mile in 2024). For most contractors, standard mileage is simpler and often higher.

Example: Drive 15,000 business miles per year × $0.67 = $10,050 deduction

2 Parking & Tolls

Job site parking, toll roads to clients, airport parking for business trips — all deductible. Keep receipts or use an app to track.

Example: $5/day parking × 200 work days = $1,000 deduction

3 Business Travel

If you travel overnight for work (training, trade shows, distant job sites), you can deduct airfare, hotels, 50% of meals, and transportation.

Example: Trade show trip: flight ($400) + hotel ($600) + meals ($200 × 50%) = $1,100 deduction

Tools & Equipment

4 Tools & Equipment

Hand tools, power tools, diagnostic equipment, safety gear — if you need it for work, it's deductible. Items over $2,500 may need to be depreciated over time.

Example: New drill ($200) + impact driver ($180) + multimeter ($150) = $530 deduction

5 Work Clothing & Safety Gear

Uniforms, work boots, safety glasses, hard hats, gloves — anything required for the job that you wouldn't wear otherwise. Regular clothes don't count, even if you only wear them to work.

Example: Work boots ($150) + safety glasses ($50) + work pants ($100) = $300 deduction

6 Cell Phone

If you use your phone for business (client calls, invoicing, navigation), you can deduct the business-use percentage. If it's 70% business use, deduct 70% of your bill.

Example: $100/month × 12 months × 70% business use = $840 deduction

Business Operations

7 Software & Apps

Invoicing software (like Toolbelt), accounting apps, design software, GPS apps, scheduling tools — all deductible business expenses.

Example: Toolbelt ($100/year) + accounting software ($200/year) = $300 deduction

8 Insurance Premiums

Liability insurance, workers' comp, commercial auto insurance, and health insurance premiums (if self-employed) are all deductible.

Example: Liability ($1,200/year) + health insurance ($6,000/year) = $7,200 deduction

9 License & Permit Fees

Contractor's license, trade certifications, business permits, professional memberships — fees you pay to legally operate your business.

Example: Contractor license ($400) + trade association ($250) = $650 deduction

10 Advertising & Marketing

Business cards, vehicle wraps, website hosting, online ads, yard signs, uniforms with your logo — anything that promotes your business.

Example: Truck lettering ($800) + business cards ($100) + Google ads ($600) = $1,500 deduction

Home Office & Workspace

11 Home Office Deduction

If you have a dedicated space at home used exclusively for business (paperwork, invoicing, planning), you can deduct a portion of your rent/mortgage, utilities, and internet.

Example: 150 sq ft office ÷ 1,500 sq ft home = 10% of housing costs. If housing costs $2,000/month, that's $2,400/year deduction

12 Storage & Shop Space

If you rent a storage unit for tools/materials or a shop space for your business, the full cost is deductible.

Example: Storage unit $150/month × 12 = $1,800 deduction

Professional Development

13 Education & Training

Courses, certifications, trade school, workshops that maintain or improve your skills. Must be related to your current trade (can't deduct law school if you're a plumber).

Example: HVAC certification course ($800) + safety training ($200) = $1,000 deduction

14 Trade Publications & Books

Industry magazines, code books, technical manuals, business books — resources that help you do your job better.

Example: NEC codebook ($150) + trade magazine subscription ($50) = $200 deduction

The Big One

15 Qualified Business Income (QBI) Deduction

This is huge. As a self-employed contractor, you may be able to deduct up to 20% of your qualified business income. If you make $80,000 profit, that could be a $16,000 deduction — before any other deductions.

Example: $80,000 net business income × 20% = $16,000 deduction

            💡 The QBI deduction has income limits and rules. Make sure to discuss this with your tax professional — it's often the biggest deduction contractors miss.
        

How to Track Deductions

The IRS requires documentation for deductions. "I think I spent about $500 on tools" won't cut it if you're audited.

Best practices:

Separate business and personal accounts — Get a business credit card and bank account
Save receipts — Digitally is fine. Apps can scan and categorize them automatically.
Track mileage — Use an app or log book. Record date, destination, purpose, and miles.
Keep records for 7 years — The IRS can audit up to 6 years back in some cases.

Add It Up: Sample Savings

Let's say you're a plumber making $85,000/year in net income. Here's what proper deductions might look like:

Vehicle mileage (12,000 miles): $8,040
Tools & equipment: $1,500
Cell phone (70% business): $840
Insurance: $7,200
Software & apps: $300
Home office: $2,400
Licenses & training: $1,200
QBI deduction (20%): $12,704

Total deductions: $34,184

At a 22% tax bracket, that's $7,520 in tax savings — money that stays in your pocket instead of going to the IRS.

The Bottom Line

You work hard for your money. Don't give more of it to the government than you have to.

Keep good records, track your expenses, and work with a tax professional who understands contractors. The deductions are there — you just have to claim them.

Track Your Income the Easy Way

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