Note: This is practical guidance, not tax advice. Every business situation is different. Confirm specifics with a qualified accountant or CPA before filing. IRS sources are linked throughout.
The short version
Most trades business owners significantly overpay on taxes — not because they’re doing anything wrong, but because they don’t claim everything they’re legally entitled to. Mileage alone is worth 72.5 cents per business mile in 2026, the highest IRS rate in years. Subcontractor payments are fully deductible if you have the W-9s and 1099s to back them up. Unpaid invoices can be deducted as bad debt in some situations. Materials, tools, advertising, software, phone, insurance, licensing — all deductible. The difference between a trades owner who leaves $4,000 on the table at tax time and one who doesn’t isn’t luck or a clever trick. It’s records. This guide walks through every major deduction category with real numbers, what the IRS requires to claim it, and the ones most people miss.
Tax season ends. You write a check to the IRS. You wonder, somewhere in the back of your mind, whether you left money on the table.
You probably did. Not because your accountant isn’t good — but because an accountant can only deduct what you gave them records for. The trades business owner who shows up in April with a shoebox of receipts and a vague sense of what they spent on materials gets a different result than the one who hands over clean, categorized, year-round records of every legitimate business expense.
The deductions available to a trades business owner in 2026 are substantial. Mileage. Subcontractors. Tools. Materials. Advertising. Unpaid invoices. Software. Phone. Insurance. Licensing. Each one is money you spent running your business that the IRS allows you to subtract from the income you’re taxed on. Every dollar of legitimate deductions you miss is a dollar you’re paying tax on unnecessarily.
Here’s what’s actually available, what you need to claim it, and the ones most trades owners leave behind.
1. Mileage — 72.5 cents per business mile in 2026
Vehicle and mileage deduction
72.5¢ per mile (2026 IRS rate)The IRS sets a standard mileage rate every year that reflects the average cost of operating a vehicle for business — gas, insurance, maintenance, and depreciation rolled into one number. For 2026, that rate is 72.5 cents per mile, up from 70 cents in 2025. This is the highest rate in recent history, driven by elevated vehicle ownership and insurance costs.
What counts as a business mile for a trades owner: driving from your office or home base to a job site, driving between job sites, driving to pick up materials, driving to meet a customer, driving to a supplier. What doesn’t count: your daily commute from home to a fixed office location.
Here’s what this actually means in real money. A locksmith or HVAC tech running 5 jobs a day, averaging 12 miles per job, drives about 300 business miles a week — roughly 15,000 business miles a year. At 72.5 cents:
That’s nearly $11,000 off your taxable income for doing nothing except tracking the miles you were already driving. At a 25% effective tax rate, that’s about $2,700 in actual tax savings. From a mileage log.
Two methods, and you have to pick one in year one:
- Standard mileage method: Track business miles, multiply by 72.5 cents. Simple. No receipts required beyond the log.
- Actual expense method: Deduct the business-use percentage of every real vehicle cost — gas, insurance, oil changes, tires, registration, repairs, and depreciation. If the vehicle is 80% business, you deduct 80% of actual costs.
If you use the standard mileage rate in year one, you can switch to actual expenses in later years. If you use actual expenses in year one on a vehicle you own, you generally can’t switch to standard mileage later. Start with the standard rate unless your actual costs are clearly higher.
What most people miss
The mileage log. The IRS requires a contemporaneous record — date, destination, business purpose, miles — for each trip. A log reconstructed from memory in April doesn’t hold up in an audit. Use a mileage tracking app (MileIQ, TripLog, or even a simple Google Sheet updated daily) and the deduction is solid. Skip the log and even legitimate miles become unclaim-able.
Note: if your tech owns their own vehicle and uses it for your jobs, they can deduct their own mileage on their personal return — you don’t deduct it. If you reimburse techs for mileage, that reimbursement is a business expense for you and non-taxable income for them at the IRS rate.
2. Subcontractor payments — deductible, but requires the paperwork
Payments to 1099 subcontractors
Every dollar you pay to a subcontractor for work performed in the course of your business is a fully deductible business expense. If you paid a sub $45,000 in work across the year, that’s $45,000 off your taxable income. The deduction is real and significant — but it requires that the paperwork chain is clean.
What the IRS needs to support a subcontractor deduction:
- A completed W-9 on file for each subcontractor — their legal name, address, taxpayer ID, and entity type. Get this before the first payment, not in January when you’re trying to file.
- Records of what was paid, when, and how — check copies, bank records, payment logs. The IRS wants to see that the payment was real and traceable.
- 1099-NEC filed for each sub you paid $600 or more during 2025 (the threshold rises to $2,000 for 2026 payments, filed in early 2027).
The deduction is automatic if the records are there. If the records aren’t there, even legitimate subcontractor payments become difficult to defend. We covered the full 1099 framework — the W-9 process, the thresholds, the filing deadlines — in the guide to 1099 contractors and your trades business. Read that alongside this one; they’re the same topic from two angles.
What most people miss
Paying subs by card vs. check matters for your records. Card payments don’t require a 1099-NEC from you — the payment processor reports on Form 1099-K instead. But you still need to track the payment and the W-9 for your own deduction records. The deduction is the same either way; it’s just the filing obligation that differs.
3. Materials and job supplies — deduct what you bought to do the work
Materials, parts, and job supplies
Every part, material, and consumable you purchase to complete a customer job is a deductible business expense. The lock cylinder, the refrigerant, the copper pipe, the electrical panel, the door hinge, the drywall — materials used in the course of delivering your service are cost of goods sold (COGS) or direct expenses on your Schedule C. They reduce taxable income dollar for dollar.
What counts: parts purchased specifically for a job, materials consumed in the work, supplies that are used up in the course of service delivery.
What requires more care: tools and equipment with a useful life of more than one year are usually depreciated over time rather than deducted fully in year one — unless you use Section 179 expensing (see below) to deduct them upfront.
The record requirement is simple: keep receipts. A receipt from the supply house with the date, items, and amount is all you need. If you have field service software that logs materials per job, that data is your record — no reconstruction needed at year end.
4. Tools and equipment — Section 179 for immediate deduction
Tools, equipment, and Section 179 expensing
Tools and equipment with a useful life of more than one year are normally depreciated — you deduct a portion of their cost each year over several years. But Section 179 of the tax code allows a business to elect to deduct the full cost of qualifying equipment in the year it was placed in service, rather than depreciating it slowly.
For 2026, the Section 179 deduction limit is $1,220,000 (subject to phase-out for total equipment purchases exceeding $3,050,000). For a trades business buying a diagnostic tool, a new piece of HVAC equipment, or a service vehicle, Section 179 can mean deducting the entire cost in year one rather than spreading it over five to seven years.
Section 179 applies to equipment, machinery, software, and certain vehicles placed in service and used for business more than 50% of the time. Your accountant has to elect it on your return — it’s not automatic. If you made significant equipment purchases this year, ask specifically about Section 179 before your return is filed.
5. Unpaid invoices — the bad debt deduction most people don’t know they have
Bad debt deduction for uncollectible invoices
A customer who never paid. You tried everything — calls, letters, maybe a collections threat — and the invoice is genuinely uncollectible. Can you deduct it?
The answer depends entirely on your accounting method, and this is the one most trades owners get wrong.
If you use accrual-basis accounting (you record income when you invoice, whether or not you’ve collected): yes. An invoice you genuinely can’t collect after documented collection efforts can be written off as a bad debt on Schedule C. You already counted it as income; now you subtract it.
If you use cash-basis accounting (you only record income when money actually arrives): no bad debt deduction. You never counted the unpaid invoice as income, so there’s nothing to subtract. The economic loss is real, but the tax deduction doesn’t exist under cash-basis accounting.
Most small trades businesses use cash-basis accounting because it’s simpler. If you don’t know which method you use, your accountant can tell you. If you do use accrual basis, document your collection attempts thoroughly before claiming bad debt — the IRS wants to see that you genuinely tried to collect.
The better move regardless of accounting method: collect at the door. Our guide to billing customers who won’t pay covers the collection process. And as discussed in the job verification post, in-field card payment at job close is the most effective prevention — a paid invoice can’t become a bad debt.
6. Advertising and marketing — everything you spent to get customers
Advertising, marketing, and customer acquisition costs
Every dollar you spent getting customers is a deductible business expense. This is a broad category that most trades owners underclaim because they don’t think of every channel as “advertising.”
What’s included:
- Google Ads and Bing Ads spend — every dollar of PPC spend is deductible
- Your website — design, hosting, domain registration, maintenance
- Business cards, vehicle wraps, yard signs, uniforms with your logo
- Directory listings — Yelp, Angi, HomeAdvisor, Thumbtack paid placements
- Review management tools
- Social media advertising
- Any promotion, coupon, or discount program you run
- Referral fees paid to other businesses for sending you customers
Keep receipts and invoices for all of it. Digital advertising platforms like Google and Meta provide monthly statements — download and save them monthly rather than trying to reconstruct at year end.
7. Software and technology — your field service platform, phone, and more
Software subscriptions and technology expenses
Business software used in the course of running your operation is fully deductible. Monthly SaaS subscriptions, annual software licenses, and technology tools all qualify. For a trades business, this includes your field service dispatch software, accounting software, mileage tracking apps, and any other tool you use to run the operation.
- Field service software (your dispatch and invoicing platform)
- Accounting software (QuickBooks, Wave, FreshBooks)
- Mileage tracking apps
- Scheduling tools
- Cloud storage and file services
- Communication tools used for business
Your phone is also partially deductible. If you use your personal phone for business, estimate the business-use percentage honestly and deduct that percentage of your monthly bill. If the phone is exclusively for business, it’s fully deductible. Keep monthly statements.
8. Insurance — premiums are a business expense
Business insurance premiums
Insurance premiums you pay to protect your business are fully deductible. This includes general liability insurance, commercial auto insurance, professional liability (errors and omissions), tools and equipment insurance, and workers’ compensation premiums. If you pay for your own health insurance as a self-employed person, there’s a separate self-employed health insurance deduction available — ask your accountant about this one specifically, as it can be significant.
9. Licensing, permits, and continuing education
Professional licenses, permits, and education
Licensing fees paid to state boards, permit fees for jobs that require them, and continuing education required to maintain your license are all deductible business expenses. For a locksmith, HVAC contractor, electrician, or plumber, these are real annual costs that should be tracked and claimed. Trade association dues (ALOA, ACCA, etc.) are also deductible.
10. Home office — if you genuinely work from home
Home office deduction
If you use part of your home exclusively and regularly as your principal place of business — the room where you do your scheduling, invoicing, customer calls, and administrative work — you may qualify for a home office deduction. The simplified method allows $5 per square foot of dedicated office space, up to 300 square feet ($1,500 maximum). The regular method deducts the actual percentage of home expenses (mortgage/rent, utilities, insurance) attributable to the office space.
The “exclusively and regularly” standard is strict. A corner of your bedroom where you occasionally check email doesn’t qualify. A room used only as your business office does.
The deductions most trades owners actually miss
Beyond the major categories above, here are the smaller deductions that add up and consistently get left off returns:
- Bank fees and merchant processing fees — the 2.9% + $0.30 your processor charges on every card swipe is a deductible business expense. At $500,000/year in card volume, that’s roughly $14,500 in processing fees — fully deductible.
- Interest on business loans or credit cards used for business purchases
- Accounting and tax preparation fees — what you pay your accountant is itself deductible
- Uniforms and branded workwear that aren’t suitable for everyday wear
- Safety equipment — gloves, boots, eye protection required for the work
- Parking and tolls incurred on business trips (separate from mileage)
- Business meals with clients or business partners — 50% deductible, needs documentation of who was there and the business purpose
- Startup costs — if you started the business in 2026, up to $5,000 of startup costs can be deducted in the first year
The record-keeping that makes all of this work
Every deduction above requires documentation to survive an audit. The IRS doesn’t take your word for it — they want records. Here’s what that means in practice:
Year-round records every trades owner should keep
- Mileage log — date, destination, business purpose, miles, for every business trip
- Receipts for all materials and supplies (digital copies are fine)
- W-9 on file for every subcontractor before first payment
- Payment records for every sub — amount, date, method
- Monthly statements from all advertising platforms (Google, Meta, etc.)
- Software subscription invoices — download monthly, don’t lose access to old ones
- Insurance premium invoices and payment confirmations
- Licensing fee receipts
- Bank and credit card statements showing business expenses
- Equipment purchase receipts for anything that might qualify for Section 179
- Collection documentation for any invoice you’re treating as bad debt
The single biggest factor separating trades owners who get the full deduction benefit from those who don’t: records captured throughout the year, not reconstructed in March. Field service software that logs job costs, materials, and payments automatically gives you a built-in record system — the data that runs your dispatch is the same data that feeds your accountant. No shoebox required.
Your Tax Records, Built While You Work
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START FREE TRIAL →The bottom line
The trades business owner who pays the least tax isn’t doing anything clever. They’re claiming every legitimate expense the IRS allows — mileage at 72.5 cents a mile, every subcontractor dollar with a W-9 behind it, every material receipt, every software subscription, every insurance premium. They hand their accountant clean records in February and their accountant spends two hours on the return instead of six.
The ones who overpay are the ones who either don’t know what’s deductible or don’t have the records to prove it. Both problems have the same fix: track throughout the year, not at year-end. The difference in tax owed, compounded across a career of running a trades business, is significant.
Talk to a qualified accountant about your specific situation. But come to that conversation knowing what to ask about — that’s what this guide is for.
This is general guidance, not tax advice. Consult a licensed CPA or tax professional for advice specific to your business. For official IRS information on business deductions, visit irs.gov irs.gov.
