Contractor Tax Planning FAQ
Straight answers to the tax questions construction business owners ask Maya Slivkov most.
Should my construction company be an LLC or an S-corp?
An LLC and an S-corp aren’t opposites — an LLC can elect S-corp tax treatment. Many profitable contractors save on self-employment tax with an S-corp election, but it adds payroll and compliance costs. The right choice depends on your profit level, and it’s worth modeling before you elect.
What tax deductions do contractors miss most often?
The most commonly missed contractor deductions include the home office deduction, vehicle costs beyond standard mileage, equipment depreciation (Section 179), hiring family members, the Augusta Rule for renting your home to your business, and retirement plan contributions. A proactive plan reviews all of these before year-end, not at tax time.
How much should I pay myself as an S-corp owner?
The IRS requires S-corp owners who work in the business to take “reasonable compensation” as W-2 salary before taking distributions. What’s reasonable depends on your role, industry, and location. Setting it too low is one of the most common audit triggers for contractor S-corps.
Do I need job costing or separate books per project?
If you want to know which jobs actually make money, yes. Job costing tracks income and expenses per project so you can see margins in real time instead of guessing. Most contractors who switch to job-costed books find at least one service line losing money.
What is the Augusta Rule?
Section 280A(g) — the “Augusta Rule” — lets you rent your home to your business for up to 14 days per year tax-free. Your business deducts the rent; you don’t report the income. It requires real documentation: a rental agreement, comparable rates, and proof of business use.
Can I hire my kids in my contracting business?
Yes. Wages paid to your children for real work in your business are deductible, and children under 18 working for a parent’s sole proprietorship or partnership are exempt from Social Security and Medicare tax. The work must be legitimate and documented with timesheets and reasonable pay.
How do quarterly estimated taxes work for contractors?
If you’re self-employed or an S-corp owner, you generally owe estimated tax payments four times a year (April, June, September, January). Underpaying can trigger penalties. A quarterly review keeps payments matched to actual income instead of last year’s guess.
What’s the difference between a bookkeeper, a CPA, and a tax strategist?
A bookkeeper records what already happened. A CPA typically files your return based on those records. A tax strategist plans ahead — structuring entities, timing income and purchases, and using legal strategies to reduce what you owe before the year ends. Most contractors need all three working from the same plan.
Can I deduct my work truck?
Usually, yes — through actual expenses or the standard mileage rate, plus potential Section 179 or bonus depreciation on qualifying vehicles placed in service during the year. The vehicle must be used for business, and personal use must be tracked and excluded.
What records does the IRS expect from a construction business?
At minimum: complete income records, receipts for all deductions, mileage or vehicle logs, payroll records, bank and credit card statements reconciled monthly, and contracts/change orders supporting job income. Clean monthly books make an audit dramatically less painful.
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