The Most Common Electrician Tax Deductions

A business tax deduction is a permissible expense that can be subtracted from a company’s income, lowering the total amount subject to taxation. For self-employed electricians and small electrical contracting businesses, these deductions are a primary method for reducing their annual tax liability. The Internal Revenue Service (IRS) permits the deduction of expenses that are both “ordinary” and “necessary” for operating a business. An ordinary expense is one that is common and accepted in the electrical trade, while a necessary expense is one that is helpful and appropriate for the business.

Differentiating Business Expenses from Cost of Goods Sold

A distinction in business accounting is between Cost of Goods Sold (COGS) and regular business expenses. COGS represents the direct costs associated with the materials and supplies that become part of a finished job for a customer, such as wire, conduit, outlets, and electrical panels. Properly calculating COGS is the first step in determining a business’s profitability, as it is subtracted from your gross receipts to arrive at your gross profit. The cost of these goods is accounted for when they are used or sold, not necessarily when they are purchased.

In contrast, general business expenses are the costs incurred to operate the business that are not directly incorporated into a customer’s project. These are the overhead and administrative costs of running the company, such as a new power drill or liability insurance premiums. These costs are deducted from the gross profit figure to calculate the final net income of the business.

Vehicle and Transportation Deductions

The IRS provides two primary methods for deducting vehicle expenses: the standard mileage rate and the actual expense method. A business owner must choose one method per vehicle for the year.

The standard mileage rate is a simplified approach that allows you to deduct a set amount for each mile driven for business purposes. The rate for 2025 is 70 cents per mile and is intended to cover all the variable costs of operating the vehicle, such as gasoline, oil, and routine maintenance. Deductible business travel includes driving between different job sites, traveling to a supplier to pick up materials, and meeting with clients.

The actual expense method involves tracking and deducting the specific costs of operating the vehicle for business use. This includes expenses such as fuel, oil changes, tires, insurance, registration fees, repairs, and depreciation. If you use this method, you must calculate the percentage of time the vehicle was used for business versus personal travel and apply that percentage to your total vehicle costs.

The daily commute from your home to your first job site is generally considered a non-deductible personal expense. However, travel from your first job site to subsequent ones throughout the day is deductible. For electricians using a dedicated work van or truck, additional deductions may be available, such as the cost of installing permanent shelving or ladder racks.

Tools, Equipment, and Supplies Deductions

Electricians rely on tools, equipment, and supplies that are not directly incorporated into a customer’s project and are therefore treated as business expenses. The way they are deducted depends on their cost and useful life.

Smaller, less expensive items can typically be deducted in the year they are purchased. This includes common hand tools like pliers and screwdrivers, as well as consumable supplies like electrical tape and fasteners. Under the de minimis safe harbor election, businesses can elect to expense items that cost up to $2,500 per item or invoice.

Larger and more costly pieces of equipment are considered capital assets and must be depreciated over an expected useful life. Examples for an electrician might include a thermal imaging camera or a bucket truck. The tax code offers ways to accelerate these deductions. The Section 179 deduction allows a business to expense the full purchase price of qualifying new or used equipment in the year it is placed in service. For 2025, the maximum deduction is $1,250,000 on up to $3,130,000 of equipment purchases.

In addition to Section 179, businesses may be able to take bonus depreciation. This tax incentive allows for an additional first-year deduction on the cost of qualifying property. For 2025, the bonus depreciation rate is 40% of the asset’s cost, and this rate is scheduled to drop to 20% in 2026. Safety equipment, such as work boots, insulated gloves, and hard hats, is also fully deductible.

Professional and Administrative Deductions

Running an electrical business involves numerous overhead costs that are deductible as professional and administrative expenses. Insurance is a primary example, with premiums for general liability, professional liability, and workers’ compensation policies being fully deductible. Another significant category is licensing and continuing education. The fees paid to state or local boards to obtain and renew an electrician’s license are deductible, as is the cost of any mandatory continuing education courses required to maintain that licensure.

Many electricians operate part of their business from home, which may qualify them for the home office deduction. To claim this, a portion of the home must be used exclusively and regularly for administrative or management activities. The deduction can be calculated by determining the percentage of the home used for business and applying that to rent, mortgage interest, utilities, and insurance.

Other common administrative deductions include:

• The business-use percentage of a personal cell phone bill and internet service.
• Software used for accounting, project management, or customer scheduling.
• Subscriptions to trade journals and industry publications.
• Marketing and advertising costs, such as website hosting, business cards, and online ads.
• Fees paid for professional services from accountants, bookkeepers, or lawyers.

Recordkeeping for Tax Deductions

Claiming tax deductions requires diligent and accurate recordkeeping, as the IRS mandates that all claimed business expenses must be substantiated with proof. Without proper documentation, deductions can be disallowed during an audit, leading to additional taxes and penalties. The types of records that must be kept include receipts, invoices, and bank or credit card statements. For every expense, the documentation should show the amount paid, the date, the vendor, and a description of the item or service purchased.

Using a dedicated business bank account and credit card simplifies the process of tracking business income and expenses. For vehicle expenses claimed using the standard mileage rate, a detailed mileage log is a requirement. This log should be kept contemporaneously, meaning it is updated at or near the time of the travel. For actual vehicle expenses, all receipts for fuel, repairs, and other costs must be retained.

The IRS requires records to be kept for three years from the date a tax return was filed. The use of accounting software or receipt-scanning apps can help streamline the recordkeeping process.