Common Tax Deductions for Construction Workers - S'witty Kiwi (2024)

If you work in the construction industry, you may be eligible for various tax deductions that can lower your taxable income and save you money. Tax deductions are expenses that you can subtract from your gross income to reduce the amount of tax you owe. By claiming tax deductions, you can effectively lower your tax rate and keep more of your hard-earned money.

However, not all expenses are deductible, and the rules and requirements may vary depending on your situation. As a construction worker, you may incur different types of expenses that relate to your work. These expenses may fall into different categories of deductions, such as employee business expenses, self-employment expenses, or capital expenses. Each category has its eligibility criteria and methods for deducting expenses.

This article provides a brief overview of the expenses in the main categories of deductions that may apply to construction workers and explains how to claim them on your tax return.

Take advantage of these expenses for tax deductions as a construction worker:

1. Safety Equipment and Uniforms
2. Work-Related Travel
3. Vehicle Expenses
4. Tools and Equipment

1. Safety Equipment and Uniforms

As a construction worker, you may need to wear or use certain safety equipment and uniforms to protect yourself and comply with occupational health and safety standards. These items may include steel-toed boots, hard hats, gloves, construction vests, safety glasses, ear plugs, and respirators. If you purchase these items for your work, you may be able to deduct them as employee business expenses or self-employment expenses, depending on your employment status.

However, not all safety equipment and uniforms are deductible. To qualify for the deduction, you must meet the following criteria:

• Your job or company must require the items. For example, if your employer has a policy that requires you to wear steel-toed boots on the job site, or if the Occupational Safety and Health Administration (OSHA) mandates that you wear a hard hat and a construction vest, you can deduct these expenses.
• The items must not be suitable for everyday use. Even if your employer demands them, you cannot deduct the expense of a typical shirt or trousers you wear to work because they are acceptable for everyday usage. However, you can deduct the cost of a specialized uniform that has a logo or a distinctive design that identifies you as a construction worker, because it is not suitable for everyday use.

To claim the deduction for safety equipment and uniforms, you must keep track of your receipts and records for these items. Keep a written statement from your employer that specifies the required items for your work. Note the date and amount of each purchase, and the purpose for each purchase. You can use a spreadsheet, a notebook, or a mobile app to organize your records.

2. Work-Related Travel

Another category of deductions that may apply to construction workers is work-related travel. Work-related travel is any travel that you do for your work, such as traveling to and from job sites, client meetings, and picking up tools and materials. However, work-related travel does not include commuting to and from your regular place of business, such as your office or home, unless you have a temporary work location or a home office that qualifies as your principal place of business.

If you use your vehicle for work-related travel, you can deduct your vehicle expenses using one of the two methods: actual expenses or standard mileage rate.

• Actual expenses method: This method allows you to deduct the actual costs of operating your vehicle for work purposes, such as gas, oil, repairs, maintenance, insurance, and registration fees. However, you can only deduct the portion of these expenses that corresponds to your business use percentage. To get this, divide your business miles by your total miles.
• Standard mileage rate method: This method allows you to deduct a fixed amount for each mile that you drive for work purposes, regardless of your actual vehicle expenses. The standard mileage rate is set by the IRS each year and may change depending on the cost of gas and other factors. For 2023, the standard mileage rate is 58 cents per mile. However, you cannot deduct depreciation or any other vehicle expenses, except for tolls and parking fees, if you use this method.

Each method has its pros and cons, and the best method for you may depend on your situation and preferences. Here are some factors to consider when choosing a method:

• The actual expenses method may be more beneficial if you have high vehicle expenses, such as a new or expensive car, or if you drive a lot of miles for work. However, this method requires more recordkeeping and documentation, as you need to keep track of all your vehicle expenses and receipts. You also need to follow the IRS rules for depreciating your vehicle, which can be complicated and restrictive.
• The standard mileage rate method may be more beneficial if you have low vehicle expenses, such as an old or economical car, or if you drive fewer miles for work. This method is simpler and easier to use, as you only need to keep track of your mileage, tolls and parking fees. You also have more flexibility in choosing when to switch to this method, as long as you use it in the first year that you use your vehicle for work.

Regardless of approach, you must document travel expenses and mileage to claim work-related travel deductions. Keep a logbook or mobile app documenting each trip’s date, destination, purpose, and miles. Also keep toll, parking, and other receipts.

3. Vehicle Expenses

Vehicle expenses are another type of work-related travel expense that you can deduct if you use your vehicle for your work as a construction worker. Vehicle expenses include the costs of operating and maintaining your vehicle, such as gas, oil, repairs, maintenance, insurance, and registration fees. You can deduct these expenses using either the actual expenses method or the standard mileage rate method.

However, there are some limitations and exceptions for deducting vehicle expenses, depending on which method you use and what type of vehicle you have. Here are some of the most common ones:

• Business use percentage: If you use the actual expenses method, you can only deduct the portion of your vehicle expenses that corresponds to your business use percentage, which is calculated by dividing your business miles by your total miles.
• Depreciation rules: Since wear and tear depreciate your vehicle, you can deduct it from your real expenses. However, you must follow the IRS’s difficult and restricted automobile depreciation standards. You must compute depreciation using the Modified Accelerated Cost Recovery System (MACRS), which has a specified technique, recovery period, and convention. If your business uses percentage changes or you convert to the regular mileage rate later in the year, you must modify your depreciation deduction.
• Luxury car limits: The IRS defines a luxury car as one that costs more than a particular amount, so if you utilize the real expenses method and have a luxury car, you may have trouble deducting depreciation. The IRS establishes the maximum luxury car depreciation deduction each year, which varies by year and car type.

Whatever method you employ, you must keep track of car expenses and documents to claim the deduction. Keep receipts for petrol, oil, repairs, maintenance, insurance and registration payments. Keep a logbook or mobile app documenting each trip’s date, destination, purpose, and miles. Keep track of vehicle cost, purchase date, and depreciation. A separate bank account or credit card might help you separate automotive spending from personal expenses.

4. Tools and Equipment

As a construction worker, you may need to buy or rent various tools and equipment to perform your work, such as hammers, drills, saws, wrenches, and trailers. These items may be deductible as employee business expenses or self-employment expenses, depending on your employment status and the type of item.

Tools and equipment deductions vary. Cost and useful life determine how the IRS classifies small and large tools.

You must retain receipts and records for tools and equipment to deduct them. Record the cost, date of purchase, and depreciation of your heavy equipment, as well as its purpose and whether it is utilized for business or pleasure. You can organize your records with a spreadsheet, notebook, or software.

Recap

Construction workers are frequently eligible for tax deductions for various expenses, such as tools and equipment, work-related travel, safety equipment, and car expenses. You can save money on taxes and reduce your taxable income by claiming these deductions. Remember to keep these records for at least three years after you file your tax return, in case of an audit.