Working as an independent contractor in the home renovation field gives you flexibility, control, and the chance to build your reputation project by project. You can choose your clients, manage your schedule, and set your prices. However, this independence comes with financial responsibilities, especially when it comes to taxes.
Unlike traditional employees, independent contractors are responsible for managing and paying their own taxes. There is no employer withholding taxes from your paycheck or filing paperwork for you. Understanding how to report your income, calculate independent contractor taxes, and claim deductions can save you time, money, and stress.
The Internal Revenue Service (IRS) defines an independent contractor as an individual who performs services for another person or business while retaining control over how the work is completed. In other words, you decide how to get the job done.
Independent contractors in construction and renovation usually include:
Income may vary widely depending on experience, specialization, and local demand.
To determine your status as an employee or an independent contractor, the IRS looks at three areas of control:
Filing taxes as an independent contractor involves tracking your income and expenses, paying self-employment (SE) taxes, and filing several IRS forms. Here is how to do it:
You must report all the money you earn, whether or not you receive a 1099-NEC form. Clients who pay you at least $600 in a year are required to send a 1099-NEC by January 31. Even if a client does not send one, you are still responsible for including that income on your tax return.
It is a good idea to use accounting software such as QuickBooks, Wave, or FreshBooks to track all invoices and payments throughout the year. Keeping organized records makes filing easier and helps you avoid errors.
Most independent contractors report their business income and expenses on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). On this form, you list your total business income and subtract your allowable business expenses to calculate your net profit or loss. That net profit is then carried to your individual tax return and is used to calculate both your income tax and your self-employment tax (via Schedule SE). You can also use an independent contractor tax calculator to estimate how much you may owe, based on your net profit.
Common deductible business expenses for home renovation professionals include:
Note that you must keep all receipts and maintain clear documentation to prove your deductions if the IRS asks for verification.
Independent contractors must pay SE tax, which covers Social Security and Medicare contributions. This is equivalent to the combined amount typically shared between employer and employee.
In 2025, the SE tax rate remains 15.3%, divided into 12.4% for Social Security and 2.9% for Medicare. SE tax applies to 92.35% of net earnings. The 12.4% Social Security part applies only up to the annual wage base, and high earners may owe an additional 0.9% Medicare tax.
You will calculate this using Schedule SE (Form 1040). The good news is that you can deduct half of this amount (the employer’s portion) from your taxable income, which helps lower your tax liability.
Because no taxes are withheld from your income, you must understand how to pay taxes as an independent contractor, which includes making quarterly estimated tax payments to the IRS.
These payments are typically due on:
These dates shift when they fall on a weekend or holiday.
You can make these payments through the mail using Form 1040-ES and a check. Alternatively, you can use the IRS’s Direct Pay system or EFTPS. Many contractors find it easier to set aside about 25% to 30% of each payment they receive for taxes.
Failing to manage your contractor taxes throughout the year can lead to penalties and interest, even if you pay the full amount when filing your annual return.
When you file your annual income tax return (Form 1040), include both your Schedule C and Schedule SE forms. If you made estimated payments, they will be applied toward your total tax owed. If you overpaid, you can expect a refund.
For most independent contractors, tax filing season is less stressful when they have maintained consistent records throughout the year.
Independent contractors and employees both pay taxes, but the manner and timing of their payments differ significantly.
Employees have taxes automatically withheld from their paycheck by their employer.
Contractors receive their full payment and are responsible for paying both income tax and SE tax directly to the IRS.
Employees pay 7.65% of their income toward Social Security and Medicare, and their employer pays an equal amount. Independent contractors are responsible for covering the entire 15.3% on their own.
Employees receive a W-2 form summarizing their income and withholdings. Contractors receive 1099-NEC forms from each client who paid them more than $600 in the year. You may receive multiple forms if you work with several clients.
Employees can no longer deduct most unreimbursed job expenses under the 2017 Tax Cuts and Jobs Act. Contractors, however, can deduct a wide range of business expenses, which can significantly reduce taxable income.
Independent contractors can open retirement accounts designed for the self-employed, such as a SEP IRA, SIMPLE IRA, or Solo 401(k). These accounts allow higher contribution limits compared to traditional IRAs, providing both tax advantages and long-term savings opportunities.
To avoid unwanted tax penalties, consider practicing the following tips:
Create a simple system for tracking your income and expenses each month. Use labeled folders or accounting apps that automatically categorize transactions. Consistency makes it easier to identify deductible expenses when tax season arrives.
Mixing personal and business expenses often causes confusion and makes it difficult to justify deductions. Open a separate business bank account and credit card. It helps you maintain clear financial records and simplifies bookkeeping.
Treat your tax savings as a regular expense. Every time you receive a payment, transfer a portion, around 25% to 30%, into a separate savings account. This ensures you always have funds ready for quarterly payments and prevents cash flow issues later.
Contractors who travel between job sites can deduct either the standard mileage rate or actual expenses such as gas, repairs, and insurance. For 2025, the IRS standard mileage rate is 70 cents per mile. Use a mileage-tracking app or logbook to accurately record your trips.
If you use part of your home exclusively and regularly for business purposes, you can claim a home office deduction. The simplified method allows for a deduction of $5 per square foot, up to a maximum of 300 square feet.
In addition to federal taxes, many states and cities have their own tax requirements. Check your state’s Department of Revenue for filing deadlines and whether you must pay sales tax or business privilege tax on your services.
If you want to attract more clients, learning how to offer customer financing can help you make renovation services more accessible and boost sales.
Tax software such as TurboTax Self-Employed, H&R Block, or QuickBooks can guide you through filing taxes as an independent contractor and ensure accuracy. If your business has grown or your projects have become more complex, consider hiring a certified public accountant (CPA) who specializes in construction or self-employed professionals.
Setting up a retirement plan secures your financial future and lowers your taxable income. If you qualify for a Health Savings Account (HSA), you can contribute pre-tax funds to cover medical expenses and reduce your overall tax bill.
Since contracting work can be seasonal, create a reserve account for slow months, equipment repairs, or unexpected expenses. You can also look into contractor financing options to smooth out cash flow during slower seasons. Keeping your finances stable ensures you can stay current with tax payments and business obligations.
Tax laws and deduction limits are subject to frequent changes. Review your plan annually with a tax advisor to ensure you are up to date on independent contractor taxes and taking advantage of new deductions, as well as updated mileage and depreciation rates. It can also be helpful to reference a contractor pricing guide to understand average market rates or renovation services in your area.
If you operate under your personal name and have no employees, you can file taxes using your Social Security number. However, an EIN is helpful if you want to open a business bank account, form an LLC, or hire subcontractors. You can apply for one free through the IRS website.
If you do not pay enough estimated tax throughout the year, the IRS may charge penalties and interest. It is better to overpay slightly than to underpay.
The exact percentage depends on your income level, deductions, and your location. A good rule of thumb is to set aside 25% to 35% of your income to cover both federal income tax and SE tax.
Yes. You can deduct the cost of tools, machinery, safety gear, and similar business-related items. If a tool has a long lifespan, such as a generator or power saw, you may need to depreciate the cost over several years instead of deducting it all at once.
Yes. If your net earnings from self-employment are $400 or more, you must file a tax return and pay SE taxes.
Keep your general tax records for at least three years. Any tax records for assets that depreciate should be kept for as long as you own the asset, and then for three years after you dispose of it. For bad debt or worthless securities claims, keep records for at least seven years.
Yes, you can hire family members, but they must be paid fairly and perform real work. You must also report their income correctly, either by issuing them a 1099-NEC as contractors or handling payroll taxes if they are employees.
Independent contractors in the home renovation field have more flexibility and earning potential than traditional employees. But they also carry full responsibility for managing independent contractor taxes. When handled correctly, taxes become less of a burden and more of a tool to manage your contracting business efficiently.
This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Tax laws change, and readers should consult a qualified professional and verify current IRS guidance.
