The Top 11 Construction Worker Tax Deduction Checklist

7 Min Read

Scope of Work

Taxes

Contractor

Tom Smery

Tom Smery is a certified CPA for over a decade. In his free time, he writes articles to pass on his expert knowledge on taxes and accounting. Thomas has a wide range of deep knowledge on 1099 taxes, and finance topics. You can find him fishing when he is not preparing taxes for his clients or writing about accounting.

On top of dealing with the hard labor that comes with being a self-employed construction worker, you'll need to deal with filing your own taxes. Yes, paying Uncle Sam is not the most pleasant experience...

But with tax deductions, you can make it a little more bearable.

One of the first steps in estimating your taxable income for the year is calculating your adjusted gross income (AGI). Adjusted gross income is defined as gross income minus adjustments to income aka after deductions.

According to the IRS, you can deduct business/ work-related expenses if they are both ordinary and necessary. In your trade or business, an ordinary expense is one that is typical and recognized. A necessary expense is one that is beneficial to your profession or industry. When it comes to your income tax, you would want to maximize your deductions and pay Uncle Sam as little as possible.

In this article, we'll go over the top ((11)) tax deductions for construction workers.

Note: If you want an automatic way to track construction worker tax deductions, try Bonsai Tax. Our tax app automatically scans your credit cards/bank statements to discover potential deductions. On average, our software saves users $5,600. Claim your 14-day free trial today.

Tax Deductions For Construction Workers

Keep detailed records of your receipts for each of these work-related expenses. Remember, the IRS states you must store receipts for a minimum of three years if you are audited. Expenses reimbursed by your employer cannot be claimed as tax deductions.

Without further ado, let's jump into our handy checklist of tax deductions for construction workers.

1. Safety Equipment /Uniforms

If you purchase any safety equipment related to construction work, they may qualify as a deduction. Here are some examples of equipment that you may be able to claim.

Steel-toed boots
First aid kits
Safety glasses
Hard hats
Gloves
Road cone
Construction vest
Gloves/hand protection

The clothing must be specific to your job and cannot be used for everyday wear. For example, although you wear jeans on your job site, since it is suitable for everyday wear, you cannot deduct the fees of this clothing. If your job requires you to have specific protective clothing or a uniform, those costs can be deducted.

Since most people would wear logo clothing only on the job, the shirts, hats or other items you provide for employees are deductible.

2. Business Travel Expenses

If your job requires you to go outside of town, any travel expenditures you incur can be claimed as a tax deduction. If you have to travel to see aclient or travel between jobs, that would qualify as a write-off.

In other words, any business travel expenses are tax-deductible.

Travel expenses you can take advantage of are:

Public transportation costs i.e. buses
Uber/Lyft expenses
Lodging i.e. hotels and AirBNBs
Business meals
Cost of business calls

It should be noted that you can deduct the costs affiliated with showing up to the event. For example, if you had to attend a conference or a trade show in Las Vegas, and you decide to stay after the event, you cannot deduct any of the expenses beyond the days of the event. Also, if you bring your family along for the trip, you cannot deduct any of their expenses.

3. Vehicle Expenses

There are two IRS-approved methods to deduct the business use of vehicle expenses: miles and the actual expenses.

Mileage

As an independent contractor or employee, you need to get reimbursement for the miles driven for work purposes.

You can deduct mileage for other work-related travel such as: from one work location to another. to meet with clients or to purchase building gear and materials. All you need to do is keep track of your miles driven for work (go here to download a mileage log template). After you calculate your total miles, multiply it by the IRS's standard mileage rate. In 2021, the mileage rate is 56 cents per mile.

Actual Vehicle Expenses

If you claim the actual expenses method for vehicle costs from your taxes, then here are the deductions you may qualify for.

Gasoline
Lease payments
Car insurance
Maintenance/repair costs
Tire purchases
Car washes
Depreciation
Car registration.
Parking fees

You can only deduct the business-related portion of these expenses. Records to keep to claim vehicle expenses may include preparation receipts or mileage logs.

Note: if you need help tracking all of the car expense receipts and all your other work-related expenses, try Bonsai Tax. Our app automatically discovers all the deductions you qualify for and easily saves you money during tax time. In fact, users typically save at least $5,600. Claim your 14-day free trial today.

4. Education Expenses

If you invest in courses or education related to construction work, then the expenses are tax-deductible. They must be directly related to your line of work. For example, a construction worker who enrolls in a first aid certification course may deduct the cost of the seminar and all of the related expenses i.e. textbooks.

Again, you may to claim any self-education directly related to your current employment and income if it improves your skills or increases your income for your current role.

You cannot claim tax deductions for education expenses where you are trying to be promoted to a new employment position or changing jobs.

5. Home Office Expenses

Construction workers with a home office space may qualify for a home office deduction. Just like vehicle expenses, you can get a home office reimbursement for related fees with two methods: the regular and the simplified method.

Regular Method

For the regular method of deducting home office fees, you'd be able to write off things like:

utilities like water bills or electricity
mortgage interest
insurance
office repairs
depreciation.

Take note of all these fees and you can deduct the business-related use percentage for your home office.

Note: An easy way to record tax deductions for construction workers, is with our software. Construction workers can sit back and relax as our software records all the potential deductions and saves you money from your tax bill. Users typically save $5,600 from their tax bill. Try a 14-day free trial today.

Simplified Method

As the name states, this method is fairly easy to calculate. You simply deduct $5 for each square foot of your home office when using this method. However, because the deduction is limited to $1,500 per year, it can only be used for workplaces that are less than 300 square feet.

6. Tools For The Trade/ Equipment

In order to do construction work and deliver on your service, you may have to purchase construction equipment or other tools. Tools or equipment used solely for business purposes is tax-deductible.

Here is a list of tools you can deduct at the end of the tax year:

Hammer
Electric drills
Wheelbarrows
Saws
Screwdrivers
Work phone
Shovels
Nail pullers
Wrenches
Ladders

You can deduct the depreciation of heavy machinery or tools you purchase. Tools that last for more than a year are considered business assets.

7. Advertising

Any money spent to advertise your services is tax-deductible. What falls into this category are online advertising expenses like Google Adwords, Facebook ads, and even physical billboards.

8. Phone Bill

When it comes to deducting your phone bill, you can only deduct the business use portion percentage from your tax bill. For example, let's say you use your cell phone 85% of the time for personal reasons and 15% of the time for business. You'd only be able to deduct 15% of the expense from your tax bill.

9. Legal Fees

As a construction worker, Iif you had to pay any legal fees related to your self-employed business, you can wrtie-off the cost as an expense from your tax return. The costs associated with hiring an accountant for tax advice or filing your tax return can also be written off.

10. Meals For Work

If you discuss work with a coworker, employer, employee or even friend over a meal, the cost of the food paid can be deducted from your taxes. Typically the meal deduction is 50%. However, Biden recently passed a 100% meal tax deduction law in 2021.

11. Labor Costs

If you subcontract other employees to complete your services, you can deduct the costs. As a self-employed construction worker, you are allowed to hire other contractors to complete your job.

We always recommend you seek the help of a professional for advice and assistance for filing your tax returns. Our software can help you manage your taxes and save money, but it is your responsibility to complete your tax return properly.

What Defines a Verbal Contract?

A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.

Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.

Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.

The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.

Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.

When is a Verbal Agreement Legally Binding?

For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:

Offer and acceptance: An offer is made and accepted by another party involved in the agreement;
Consideration: The involved parties must exchange something of value (money, a service, time, etc), this is known as consideration;
Intention and certainty: All parties must fully understand the terms of the contract and intend to make a legally binding agreement freely; and
Capacity: The parties must have the capacity to legally enter into the contract; they're above age and of a stable mindset.

Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.

How strong is a verbal agreement in court?

Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.

If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.

That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.

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When are verbal agreements not enforceable?

There are some types of contracts which must be in writing.

The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:

The sale of real estate or vehicles
Real estate leases lasting longer than one year.
Property transfer following the death of the owner.
The case of a party agreeing to pay debt for someone else.
Any contract that requires more than a year to fulfil.
A contract involving and exceeding a specified amount of money (which varies by state).

Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.

Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.

How are Verbal Contracts Enforced?

Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?

How can you prove an oral contract?

Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!

If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.

Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.

Written vs Verbal Contracts: What's the Verdict?

Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.

So, ultimately, the question is: written or verbal agreements?

Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.

Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.

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Motion design / animation

Say hello to digital contracts

Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.

There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.

Benefits of written contracts

A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.

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With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.

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