The difference between a profitable job and a break-even disaster is tracking costs in real time. Here's everything contractors need to know about bookkeeping — from job costing to tax deductions.
Contractors — general contractors, electricians, plumbers, HVAC, carpenters, roofers — have bookkeeping challenges that office-based businesses don't face:
Most contractors track overall income and expenses. That's not enough. You need to know profitability per job.
Job costing means assigning every dollar of cost to a specific project. That $800 in lumber? Assign it to the Smith deck job. Those 40 hours of labor? Smith deck. The electrician you subbed? Smith deck.
At the end of the job, you compare total costs to the contract price. If you bid $15,000 and spent $12,000, you made $3,000 (20% margin). If you spent $14,500, you made $500 (3% margin — basically worked for free).
Create a "job" or "project" for each contract. When you buy materials, assign the expense to that job. When you pay subs, assign it. When you log hours, assign them. When you invoice the client, assign the revenue. At the end, run a job P&L to see actual vs. estimated costs.
Hivebooks lets you create a project for every job. Assign transactions to projects as you categorize them. See real-time job costs, compare to your estimates, and know your margins before you finish the job — not months later when it's too late.
Start Free →Materials are your biggest expense. Here's how to track them correctly:
Lumber, drywall, fixtures, paint — anything installed in a client's project is deductible as a direct job cost. This reduces your taxable income dollar-for-dollar.
Screws, nails, sandpaper, caulk, shop rags — these are supplies, not materials. They're still fully deductible, but they're not assigned to specific jobs (unless you want to for job costing purposes).
If you buy $5,000 in materials and use $3,000 of it this year, do you deduct $5,000 or $3,000? For most small contractors (under $25M average revenue), the IRS lets you deduct materials when you buy them — no need to track inventory. This is the "materials and supplies exception" and it's a huge simplification.
Small tools under $2,500 can be expensed immediately. Larger equipment (saws, lifts, trucks) can be deducted via Section 179 (up to $1,220,000 in 2025) or depreciated over time. Section 179 is almost always better — take the deduction now instead of spreading it over years.
Contractors have some of the best tax deductions available. Here are the big ones:
If you drive a work truck, you have two options:
Pick one method and stick with it per vehicle. You can't switch back and forth year-to-year for the same truck.
Bought a $60,000 work truck? Deduct the entire amount this year instead of depreciating it over six years. Section 179 lets you deduct up to $1,220,000 (2025) in equipment purchases. This includes trucks, trailers, tools, saws, lifts — anything with a useful life over one year.
The IRS safe harbor rule: anything under $2,500 per item can be expensed immediately without invoking Section 179. Bought 10 drills at $300 each? Deduct all $3,000 this year.
Every board, bag of concrete, roll of wire, gallon of paint — fully deductible as job costs.
Every dollar you pay to subs is deductible. Just make sure you collect a W-9 from each sub and issue 1099-NECs if you pay them $600+ in a year.
Even if you have a shop or work out of your truck, if you do admin work (bidding, invoicing, scheduling) from a home office, you can claim the deduction. Simplified method: $5/sq ft, max 300 sq ft = $1,500.
Steel-toe boots, hard hats, safety glasses, high-visibility vests — deductible if required for the job and not suitable for everyday wear. Regular jeans and t-shirts? Not deductible (the IRS considers them "adaptable to general use").
Contractor license renewals, city permits, general liability insurance, workers' comp (if required or elected) — all fully deductible.
Code update classes, OSHA training, equipment certifications — deductible as continuing education. Even YouTube Premium if you use it to watch trade tutorials can be partially deductible.
"Can I deduct the new ladder?" "What about the safety boots?" "Is my truck insurance fully deductible?" Buzz — the AI assistant in Hivebooks — answers these questions instantly. No IRS publications, no guessing.
Try Buzz Free →Most contractors hire subs — electricians, plumbers, drywallers, painters. If you pay any sub $600 or more in a calendar year, you're required to issue a 1099-NEC by January 31st of the following year.
If you pay a sub $599 in a year, no 1099 required. If you pay $600, 1099 required. The total is cumulative for the year, not per job. Track it carefully.
You must file 1099-NECs with the IRS and send copies to your subs by January 31. Miss it and you face penalties: $60-310 per form depending on how late, with no maximum. Do the work in January or face a five-figure penalty if you have 20+ subs.
If your sub is an S-Corp or C-Corp, you don't need to issue a 1099. The W-9 will show "S Corporation" or "C Corporation" as the tax classification. LLCs, sole proprietors, and partnerships all need 1099s.
Unlike businesses that get paid when they deliver, contractors often operate on payment schedules:
You invoice and receive $9,000 (30% of a $30,000 job) in January. But you've only done $3,000 in work. Do you record $9,000 in revenue or $3,000?
Most small contractors use cash basis because it's simpler and matches actual cash flow. Just be aware that your revenue and profitability will look spiky.
Some contracts (especially commercial or government) hold back 5-10% until project completion. Track this as accounts receivable — it's money you've earned but haven't been paid yet.
If you hire employees (not subs), your bookkeeping gets more complex:
Required in most states if you have employees. Rates are high for construction — often $10-30 per $100 of payroll depending on trade and claims history. This is a legitimate business expense and fully deductible.
The IRS scrutinizes construction heavily. If you control how the work is done (not just the result), provide tools and equipment, and set the schedule, that person is probably an employee — not a contractor. Misclassifying can result in back taxes, penalties, and interest.
Use a payroll service. Gusto, ADP, or QuickBooks Payroll handle withholdings, filings, and quarterly reports. Costs $40-80/month and eliminates payroll tax mistakes.
Hivebooks' job costing module lets you assign every expense to a project. See real-time job profitability, track subcontractor payments, and know which jobs made money and which didn't — before you bid the next one.
Start Free →Most bookkeeping tools weren't built for job costing. Here's what actually matters:
Free bookkeeping for contractors. Track materials, labor, and profit per project. No credit card required.
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