Tax treatment depends on the contractor's legal structure, accounting method, business activity, and facts for the tax year. A contractor should use this page as a recordkeeping and planning checklist, not as a substitute for advice from a qualified tax professional.

Common business expenses may include ordinary and necessary costs for materials, subcontractors, job-site supplies, vehicle use, tools, equipment, software, advertising, professional services, insurance, and office operations. The expense must be connected to the business and supported by records that show what was purchased, when, and how it was used.

Records that support a deduction

Keep invoices, receipts, mileage logs, purchase orders, subcontractor agreements, payroll records, bank statements, and project files together. Separate business and personal spending where possible. For vehicles and equipment used for both purposes, document the business-use percentage and the method used to calculate it.

Contractors should also retain declarations pages, certificates, policy invoices, claims correspondence, and audit records. Insurance premiums and coverage expenses can interact with payroll, vehicle, project, and subcontractor records, so consistent naming and document retention reduce confusion during an audit or renewal.

California contractor considerations

California contractors should reconcile tax records with licensing, payroll, workers' compensation, and project documentation. Payments to subcontractors require careful classification and reporting, and the business should keep evidence supporting the work performed and the amount paid. Licensing and insurance obligations are separate from federal and state tax treatment.

The IRS provides small-business guidance on expenses and recordkeeping, while the California Franchise Tax Board publishes state-specific resources. Asena Capital can review the insurance portion of a contractor's risk profile through contractor insurance and coverage-specific pages. Recommendations, eligibility, and pricing depend on actual operations and underwriting.