Handyman businesses have come a long way. In the past, it was typically a side hustle, but today, being a handyman means you’re a small business owner. You balance books, handle advertising, and manage expenses just like any other small business.
You also file taxes. And no matter how good of a year you’ve had, the goal is to keep as much money as possible. Let’s look at how you can maximize your tax deductions for handyman business owners, with some of my real-world lessons sprinkled throughout.
Common Tax Deductions for Handyman Businesses
I cringe when I think back to when I started my handyman business. I had resealable bags of receipts for each of my projects. I thought this was smart thinking, as the bags protected my receipts from grease, mud, rain, and spilled coffee. However, I had no idea what I was doing with these records when tax time came around. I didn’t even really know what qualified as a deductible expense! Here are a few examples:
Tools and equipment purchases
All of the equipment you purchase for your business is tax deductible. This includes basic hand and power tools, ladders used to perform your work, buckets or toolboxes for bringing tools to the job site, and any safety equipment such as ear plugs, safety glasses, and gloves.
For expensive tools like a small tractor with a posthole digger — a dream tool for any fence-building handyman — it may be better to claim the depreciation over several years. Your accountant can help you decide.
Vehicle expenses
In the early days, I kept a small notebook for tracking mileage to and from projects. But, of course, I learned that I was missing out on a lot of potential deductions. I used my truck primarily for business, so I could’ve been writing off maintenance, tires, insurance, and even depreciation. Some states also allow business owners to write off registration fees, but alas, not New York.
Home office deductions
What handyman doesn’t operate out of a home office? But we’re talking about an actual home office, not your workbench in the garage (unless it’s attached to the main home). A home office has to be a space within the home used solely for business.
If your home office is eligible, you can write off some of your home’s expenses. For example, if your home office takes up about 10% of your home, most states will allow homeowners to write off up to 10% of their mortgage, rent, utilities, and internet expenses.
You can also deduct any of the supplies you use for your business. This includes pens, paper, printer ink, software fees, and other common expenses.
Advertising and marketing costs
All the money you spend to get the word out about your business is a deduction. The cost of your website, any work you’ve paid a web developer to perform, and other related expenses can be written off against your business’s tax liability. Even your social media ads are deductible.
Insurance premiums
No matter how big or small your handyman business is, you need to protect yourself against liability with insurance policies. This includes vehicle insurance, general liability insurance, inland marine insurance to protect your tools, and workers’ compensation insurance if you have employees. All of the premiums you pay for these policies are tax deductible.
Specialized Deductions for Handyman Businesses
The deductions we just covered are basic deductions that apply to any industry. However, some specialized deductions might apply specifically to handyman businesses and contractors.
Certification and training expenses
As mentioned, today’s handyman business owners are savvy and stay up-to-date with their training. Any fees for business, licensing, or certification courses they take are tax deductible. If a handyman carries a general contracting license, they can write off the expenses paid to obtain that license, including any courses, books, and testing fees.
Uniforms and protective gear
If you’re purchasing t-shirts, sweatshirts, and hats branded for your business, the cost of producing those items is a tax deduction. Your personal protective equipment qualifies for tax deductions, too. This includes safety glasses, ear protection, eye protection, safety-toe boots, gloves, and even the first aid kit, fire extinguisher, and eye wash items you keep in your truck.
Business travel expenses
Most handymen prefer to stay local, but if the opportunity arises, you should log any travel expenses and take them into account during tax time. This includes any hotel stays, meals, and transportation costs associated with business seminars, conventions, or other out-of-town business events.
Client entertainment costs
If you’re taking clients to dinner or events to discuss business matters, such as projects, contracts, or even mergers, your night will be mostly deductible. The cost of the food, event tickets, or other entertainment should apply, but it’s important to keep these expenses reasonable to comply with IRS guidelines.
Record-Keeping Tips for Tax Deductions
Obviously, having receipts in sandwich bags rolling around the floor of my pickup truck was far from an ideal method of record-keeping. I quickly learned that I needed to be more organized and deliberate with my expense-tracking efforts. Luckily, it’s easier than ever for handyman businesses to keep clear, accurate records. Here are some tips.
Keep detailed records
It’s crucial to maintain clear, well-organized records of all of your business expenses. This includes your receipts for parts, tools, and materials as well as invoices paid for services, mileage logs, travel expenses, and more.
Consider receipt tracking apps that allow handyman operators to scan receipts, log mileage, and enter other important expenses into a safe, secure database. You can attach each receipt to a specific job if necessary, making your life much easier come tax time.
Use recommended tools and software
Unlike a large construction company, handyman businesses don’t need to track complex projects. However, they can benefit from tracking all of the smaller jobs they perform, assigning work orders, and creating invoices automatically for easy tracking. Some project management software platforms even integrate with mobile apps, allowing users to track expenses remotely and store them in the cloud.
These programs can help track profits and expenses, generating accurate reports instantly. They can also help manage sales funnels and campaigns, allowing handymen to be more deliberate with their customer acquisition efforts.
Organize receipts and invoices
We’ve already mentioned this, but it’s so critical that receipts don’t end up crumpled in your cupholder that it’s worth mentioning again. When you get receipts, invoices, and other forms, store them neatly. A digital folder you can access from anywhere is simplest, but accounting software is even better.
Hiring a Tax Professional for Handyman Businesses
While I would consider this post nothing short of literary gold, all handyman businesses should consider hiring a tax professional to guide them through the deduction process. These professionals should understand the tax code and all the regulations inside and out, helping you file with confidence.
Benefits of working with a tax professional
When a handyman business is small, the tax filing process is usually straightforward. However, making sure you claim all the deductions you’re entitled to can be tricky. A tax professional who specializes in handyman and contracting businesses will know exactly what to look for and can help ensure you’re maximizing your eligible deductions.
Tax accountants can also help you make more difficult decisions, like should you:
- Purchase your work truck or lease it?
- Claim the entire purchase of a tool this year or claim the depreciation for the next few years?
- Continue as a sole proprietor or form a corporation?
Strategic tax planning is a large part of what these professionals do, allowing you to focus on your business. And all the fees you pay to file your taxes, including those paid to the accountant, are tax deductible!
Make the Most of Your Deductible Expenses This Year
Maximizing tax deductions is one of the best ways to protect your profit margins and bottom line. By understanding the deductions available to your business, maintaining accurate and complete records, and seeking the help of a tax professional, you can ensure you’re taking full advantage of every opportunity to save. Keep these strategies in mind as you prepare for tax season, and watch your business finances thrive.