Tax Deductions for HVAC, Plumbing and Electrical Contractors (2026)

A trade shop can deduct the ordinary and necessary costs of doing the work: materials and parts, subcontractors, wages, trucks, tools, fuel, insurance and bonds, licenses, dues and training, phones, rent, and half of business meals. On top of that, the owner gets the 20% qualified business income deduction (now permanent), self-employed health insurance, and retirement plan contributions of up to $72,000 for 2026. The big 2026 changes are permanent 100% bonus depreciation, a new $400 minimum QBI deduction, meals provided for the employer's convenience becoming nondeductible, and overtime reported in its own W-2 box.

Most of these you already take. What gets missed is usually the timing, the records, or a change in the rules. Here they are in the order a shop's money goes out.

Trucks and vans

The truck is the biggest deduction most shops have, and the most rule-bound. Two ways to take it:

• Depreciation, including 100% bonus or section 179 in the year it goes into service. A truck or van rated over 6,000 pounds and used more than half for business can often be written off in full. One rated 6,000 pounds or less is capped at $20,300 in the first year.
• The standard mileage rate: 72.5 cents a mile for January through June 2026 and 76 cents from July 1. Parking and tolls go on top.

You choose in the first year the vehicle is used for business. Take section 179 or bonus and you can never switch that vehicle to the mileage rate. Either way, keep a log if the truck goes home at night. The details, including recapture when you sell, are in buying a work truck before December 31.

Fuel, repairs, insurance, registration and loan interest are deductible under the actual-expense method, for the business share.

Tools and equipment

Under $2,500 an item: expense it. The de minimis safe harbor lets a business without audited financial statements expense anything costing up to $2,500 per invoice or per item, instead of depreciating it. Two conditions: a consistent policy in place at the start of the year (it doesn't have to be written), and an election statement attached to the return every year. A $1,900 press tool, a $2,300 vacuum pump and a $600 meter all qualify.

Over $2,500: bonus or section 179. A $14,000 sewer jetter or a $9,000 trailer can be written off in full in the year it goes into service under 100% bonus depreciation or section 179. Your CPA can also depreciate it over its life if a smaller deduction this year suits you better.

Materials, parts and subcontractors

Materials and parts that go into the customer's job are the shop's largest cost and fully deductible, as cost of the work. Two things decide how much lands in 2026:

• Inventory on the trucks. Parts you have bought but not yet used are inventory, not an expense, under most accounting methods. Your CPA decides how a shop your size handles them. Count the trucks on December 31 either way.
• Cash or accrual. On the cash method, a supply-house bill you pay on December 30 is a 2026 deduction. On accrual, it is deductible when the bill is incurred, paid or not.

Subcontractors are deductible as you pay them, and they come with paperwork. A sub you paid $2,000 or more in 2026 by check, ACH or Zelle gets a 1099-NEC by February 1, 2027. Get the W-9s now, and see the 2026 threshold for who counts.

Payroll, and the new overtime box

Wages, the employer's share of payroll taxes, workers' comp and employee benefits are all deductible. The 2026 change is on the reporting side.

The One Big Beautiful Bill Act gives employees a deduction for qualified overtime for 2025 through 2028: up to $12,500, or $25,000 on a joint return, phasing out above $150,000 of income, or $300,000 joint. To make it work, employers must report qualified overtime separately on 2026 W-2s, in box 12 with code TT. Report the full qualified amount, even above the employee's cap.

Only the premium the federal Fair Labor Standards Act requires counts: the extra half of time-and-a-half for hours over 40 in a week. Overtime paid under a state rule like California's daily overtime, or under a union contract, counts only to the extent it is the federal premium. For a shop with W-2 techs who work long weeks in July, that is a real number. Ask your payroll provider now how it will fill in code TT; the W-2s are due February 1, 2027.

Insurance, bonds and licenses

General liability, commercial auto, tools and equipment coverage, and the shop's property insurance are deductible business insurance. So are the premiums on license and permit bonds, as ordinary business costs.

State and local contractor licenses, permit fees, and the cost of keeping them current are deductible. Continuing education that maintains or improves your skills in the trade you are already in is deductible; training that qualifies you for a new trade is not.

Dues, software, phones and the office

• Trade association dues are deductible, except the part the association spends on lobbying, which it has to tell you. Social and recreational club dues aren't.
• Software and subscriptions: your field service software, your bookkeeping, your payroll service.
• Phones: the business share of the owner's phone, with some record of how you got the percentage. Phones the shop gives its techs are a business expense.
• Rent, utilities and the shop. If you run the business from home, the simplified home office deduction is $5 a square foot for up to 300 square feet, a $1,500 maximum, for space used regularly and only for the business.
• Work clothes and safety gear: deductible only when required for the work and not suitable for everyday wear. Safety boots, glasses, hard hats and work gloves meet that test; a plain shirt does not.

Meals, and the 2026 change

The middle two rows changed on January 1, 2026. Under the 2017 tax law, the 50% deduction for employer-convenience meals ended after 2025; the 2025 law's exceptions cover restaurants and certain fishing vessels, not trade shops. If the shop routinely feeds the crew, ask your CPA which row those lunches fall in, and code meals in the books by type so the answer is easy to find.

What you cannot deduct

• Fines and penalties, including the truck's parking and traffic tickets and IRS penalties
• Entertainment, even with a good customer
• Political contributions
• The owner's draws from a sole proprietorship, or an S corporation's distributions to its owners
• Personal use of anything: the truck's weekend miles, the family phone line

The owner's deductions

These go on the owner's personal return, not the business's books, but the books feed every one of them.

The qualified business income deduction. Up to 20% of qualified business income from a sole proprietorship, partnership or S corporation, now permanent. For 2026 the limits begin at $201,750 of taxable income for single filers and $403,500 for joint filers; below those, a trade contractor generally gets the full 20%. New for 2026: an owner who materially participates and has at least $1,000 of qualified business income gets at least $400.

Self-employment tax. 15.3% on 92.35% of net self-employment earnings, with the Social Security part stopping at $184,500 for 2026. Half of it is deductible.

Self-employed health insurance. Deductible on Schedule 1, limited to the business's net profit, and not for any month you could have joined an employer-subsidized plan, including a spouse's. A more-than-2% S corporation owner runs the premiums through their W-2.

Retirement plans. The most flexible deduction there is, because some of it can wait until next year.

For a self-employed owner, "compensation" for a SEP is net earnings after half the self-employment tax and the contribution itself, so the real ceiling is lower than 25% of profit. A sole owner with no employees can adopt a first solo 401(k) after year end and still make the first year's deferrals by the return's due date. If you already have a 401(k), ask your provider about the deadline for this year's deferral election.

Before December 31

1. Buy the tools and equipment you need, and get them in service. Under $2,500 an item is an expense under the de minimis safe harbor; above it, bonus or section 179.
2. Pay the December bills if you are on the cash method and want the deduction in 2026.
3. Count the parts on the trucks and in the shop on December 31.
4. Start or update the mileage log for every vehicle that goes home.
5. Get W-9s from every sub you will send a 1099 to in January.
6. Ask your payroll provider about W-2 code TT for overtime.
7. Decide on retirement contributions with your CPA. The SEP can wait until you file.

When the year closes, what your CPA needs at year end has the full list, and how much to set aside for taxes covers paying for what is left.

How Poof sorts the deductions

In Poof, every account is mapped once to the line it lands on in Schedule C or Form 1120-S, and the year on those lines ties to the books' net income. The questions your CPA asks come with the books' figure beside each one: meals, penalties, depreciation, vehicles, officer pay against draws, and the 1099s. Tools and trucks bought on a bill or a card come up as a card to put them on the asset register, and the year-end package puts it all in one PDF.

The tax calls, like which depreciation election to make, stay your CPA's. Poof prepares the year and reminds you of every date; it never files a return.

*General information, not tax advice; your CPA has the final word.*

*Written by Austin Semple, a former controller: two years in audit, seven running the books for small businesses, and the founder of Poof. Poof maps your books to the lines of your return and hands your CPA the year with the questions answered. Start free, no card required.*