The Contractor's Complete Guide to Expense Tracking

Expense tracking for contractors is more complex than for most businesses — because expenses aren't just business vs. personal. They're also job-specific. The $850 lumber run was for the Peterson job. The $200 concrete bags were for the Williams job. Tracking the total is useful; tracking by job is essential.

Why Expense Tracking Is Worth Your Time

Three reasons expense tracking pays for itself:

1. Tax deductions: Every documented business expense reduces your taxable income. A contractor in the 25% tax bracket who documents $20,000 in additional deductions saves $5,000 in taxes.
2. Job profitability: Without expense tracking per job, you don't know if you're making money. You might be busy and broke.
3. Better bids: Historical expense data makes your estimates more accurate. You stop bidding based on guesses.

The Contractor Expense Categories

Materials and Supplies

Everything that goes into the work: lumber, concrete, pipe, wire, drywall, fixtures, hardware, paint, adhesives, fasteners. This is usually your largest expense category.

Tracking tip: Capture the receipt immediately at the supply house. Don't wait until the end of the day — by then you won't remember which job the materials were for.

Labor and Time

Your own labor, employee wages, and helper pay. This is the most undertracked category because contractor-owners often don't count their own time.

Even if you're not paying yourself an hourly wage, you should track your hours per job for job costing purposes. Use a realistic market rate for your skill level to calculate your labor cost.

Subcontractors

Any specialty work you hire out: electrical, plumbing, HVAC, concrete, roofing. Always assign sub costs to the specific job, not just a general "subcontractors" category.

Requirement: Issue Form 1099-NEC to any subcontractor you pay $600 or more during the year. Get their W-9 at the start of the relationship, not in January when you need to file.

Vehicle and Transportation

Two approaches for vehicle deductions:

• Standard mileage rate: Track business miles, multiply by IRS rate ($0.67/mile in 2024). Simpler, works well for most contractors.
• Actual expenses: Track gas, oil changes, insurance, depreciation, and deduct the business-use percentage. More complex, sometimes higher deduction.

Automatic mileage tracking makes the standard mileage method effortless.

Tools and Equipment

Under the IRS Section 179 deduction and safe harbor rules, you can often deduct tools and equipment in the year purchased rather than depreciating over time. Key thresholds:

• Under $2,500 per item: generally fully deductible in current year
• Over $2,500: may need to depreciate, or use Section 179

Insurance

General liability, workers' compensation, commercial auto, tools/equipment insurance, professional liability — all deductible. If you pay annually, track the payment date correctly for the right tax year.

Permits and Licenses

Building permits are a direct job cost — track them per project. Your contractor's license renewal, business license, and any trade-specific certifications are general business deductions.

The Four-Rule Expense Tracking System

What Good Expense Records Look Like at Tax Time

When you've tracked expenses properly all year, your accountant (or tax software) needs:

• Total expenses by category
• Mileage log or total business miles
• List of subcontractors paid $600+ (for 1099s)
• Receipts for any item over $75 (IRS recommendation)

With contractor bookkeeping software, all of this is available with a couple of report clicks. No digging through boxes. No reconstructing from bank statements.