Tax & Accounting for Growing Trades Businesses (HVAC, Electrical, Plumbing)

If you run a specialty trades or home services business - such as a plumbing, HVAC, electrical, roofing, or landscaping business - we understand the tax/accounting challenges you face. At Doug Johnson CPA, we serve lots of folks in the trades and construction industries, and we see the same few issues:

  • Owners not understanding how to pay themselves
  • S-corp election not made when appropriate (or alternatively, made too early)
  • Poor bookkeeping preventing owners from understanding the company's true performance
  • Trucks and equipment deducted improperly - creating unnecessary audit risk
  • Misclassification of employees (W-2 vs 1099)

Below, we'll cover all of these items (and more!), plus we'll answer a few FAQ we often hear from our clients in the trades. We'll also include links to deeper guides on a few different tax/accounting topics.

If you want to learn more about working with us at Doug Johnson CPA, just scroll down to the bottom of this page and complete our intake form! We've helped trades and construction clients across the nation scale from small shops to well-oiled machines doing multiple millions in annual revenue.

How should you pay yourself from your business?

Ultimately, this is a question about entity structure. Different entities have different owner pay structures:

  • Sole proprietor or single-member LLC: You don't pay yourself a traditional W-2 paycheck - you take draws, and you pay self-employment tax (15.3% until 184.5K in income, 2.9 - 3.8% thereafter) on the majority of your net profit, whether you draw the money or leave it in the business.
  • S-corp: You pay yourself a "reasonable" W-2 salary (payroll taxes apply, which are basically equivalent to self-employment tax) and supplement with distributions. Since distributions don't face self-employment tax, this strategy can yield powerful tax savings.
  • Partnership: No W-2 paychecks for partners - partners pay themselves via "guaranteed payments" and partner distributions, which are typically taxed as self-employment income. Paying W-2 wages to partners is a common error - but can cause issues with the IRS.

Check out our full guide here: How to Pay Yourself from Your Trades Business

When does an S-corp make sense for your trades business?

An S-corp election can be a powerful tax strategy, but only under the right circumstances. Typically, an S-corp election starts to make sense at ~100K of consistent net profit or more - but each scenario is different. There's a few things to consider before going the S-corp route (where a CPA can help):

  • State-level payroll or income taxes: Tennessee, for instance, imposes a 6.5% tax on S-corps, which means they're almost never worth it in TN
  • Consistency: one great year isn't enough, as unwinding an election is very difficult
  • Reasonable salary: the IRS won't allow you to take a token salary to evade payroll taxes - your salary has to be reasonable for your role, and your business has to be able to afford to pay it

An S-corp election is a decision that should be data-driven, not vibes-based, and this is the exact insight we help provide our clients - we build individualized models to calculate potential tax savings.

What does good bookkeeping for a trades business look like?

In order to effectively run (and eventually grow) your business, you need timely financial information. Good bookkeeping will provide you with all of the following:

  • Timely info: Growing businesses need monthly insights into cash flow / net income to make good decisions. We provide clients with P&L reporting in the first two weeks of each month.
  • Accurate financials: The only thing worse than delayed financial info is incorrect financial info. Relying on incorrect financials is the easiest way to run your business into the ground.
  • Increased ability to tax plan: Without accurate financials, smart, proactive tax planning is impossible. Reliable bookkeeping is the foundation of your financial system.

It's a common misconception, but quality bookkeeping that achieves all of the above isn't easy to manage. For years, we've helped our clients in the trades and construction understand their businesses - and use the insights we provide to grow beyond what they thought possible.

See more: Why Is My Trades Business Profitable on Paper but Broke in the Bank?

What can you write off? Trucks, tools, equipment, and more.

It's simple - anything used for business is a deductible business expense to the extent it's used for business. Tools, supplies and equipment are all deductible expenses, and business vehicles can be depreciated to generate deductible expenses as well (often up to the full cost of the vehicle).

Since vehicle deductions are often abused, it's critical to do the following to avoid or beat an audit:

  • Maintain proper documentation of all vehicle expenses, along with detailed mileage records
  • Keep claims reasonable - don't try to claim a luxury sedan as a 100% business-use vehicle
  • Ensure vehicles are correctly accounted for (improper reporting can be an audit trigger)

Mixed business/personal use vehicles are some of the most commonly audited items for trades businesses. For mixed-use vehicles, only the business-use percentage of any expenses is deductible, and in an audit, the lack of a mileage log will result in vehicle deductions getting disallowed. Using a mileage logging app can literally save you thousands of dollars (and lots of stress) if you're audited.

Full guide: The Contractor's Truck & Equipment Write-Off Guide

Should your crew be classified and paid as W-2 or 1099 employees?

Beyond its tax implications, 1099 vs W-2 classification is also an employment law issue, so we encourage you to consult an employment lawyer - as the following is not legal advice.

Generally speaking, 1099 / W-2 status is determined via what the IRS calls the "control test". Factors that play into consideration include:

  • Who sets the schedule and provides tools / materials for the work being done
  • Timing of payment and nature of continuing relationship (project-based vs ongoing)
  • Whether the worker has other customers and real profit-and-loss risk of their own

Unfortunately, there's no hard and fast guidance - this assessment based on the facts and circumstances of each individual situation. Typically, subs with their own business, insurance, and customer base will be eligible for 1099 treatment, while someone who works only for you, on your schedule, with your tools, is usually going to be classified as a W-2 employee.

While it's tempting to try and classify your entire crew as 1099 workers to avoid payroll taxes, getting this wrong is expensive: misclassification can mean back payroll taxes, penalties, and interest.

When do you need to hire a CPA and/or a bookkeeper?

Realistically, you should hire a CPA in the year your business starts bringing in revenue. Since you're responsible for accurately reporting your income/expenses, it is important to leverage a CPA's expertise to ensure you're capturing all deductions and reporting your business info correctly.

As far as outsourcing bookkeeping goes, it is best to hire quality bookkeeping help as soon as you can afford it - as timely financial data will be critical in helping scale your business. We recommend paying for bookkeeping at the following cadence based on your revenue level:

  • 0 - 125K: Bookkeeping done annually or semi-annually (or self-managed, if you're comfortable)
  • 125-300K: Bookkeeping + P&L reporting performed quarterly
  • 300K+: Monthly bookkeeping & P&L reporting (with the goal of implementing job costing eventually)

We bundle bookkeeping / tax services to create a full-service, white-glove package. Inexperienced bookkeepers can do immense damage to your financials - your finances should be handled by an experienced, proven firm. For more info, book a call at the bottom of the page!

Frequently asked questions

  • Most likely, yes. If you expect to owe $1,000+ beyond any withholding, the IRS and state tax agencies want payments through the year - which are due 4/15, 6/15, 9/15, and 1/15.

    Fortunately, there are “safe harbor” figures available. To reach safe harbor (for IRS purposes), you’re required to pay regular quarterly payments totaling the lesser of 90% of current year tax, or 100% of the prior year's total tax (110% if your AGI exceeded 150K) - this will keep you safe from underpayment penalties. Most states have similar requirements as well. Since estimated tax obligations can be confusing, we are available to help calculate required payments (and we send out quarterly reminders).

  • For most trades businesses, yes. Nearly all small trades outfits are cash-basis taxpayers, which means a customer deposit is income the day it hits your account - even if the job doesn't start until a following year. Refundable security deposits you're obligated to give back are the exception - these items are not accounted for as income until they become nonrefundable.

    As such, adjusting the timing of customer payments (or of expenses you pay) can have large impacts on annual income, allowing for meaningful planning opportunities depending on your circumstances. For instance, you may want to show increased income in one year to qualify for a loan - while in other years, you may want to decrease income to reduce tax burden.

  • Yes - to an extent. The deduction itself happens on your employees' personal returns, not through your payroll - but you’re responsible for making sure your payroll provider tracks qualified OT and reports it separately on your employees’ W-2s.

    For 1099 contractors, this isn’t relevant (since they aren’t eligible for the “no tax on OT” deduction), but for your W-2 crew, it’s essential you have a reliable system to track and report OT.

  • Yes, specialty trades and home services businesses are a core part of our business: we work with contractors doing HVAC, plumbing, electrical, roofing, landscaping, and more!

    Tax and accounting considerations are similar across most specialty trades businesses, and when they diverge - we have the experience to handle it. With our systems in place, our trades/construction clients get business insights they’ve never had before - giving them the ability to realize rapid revenue growth and increased profitability.

  • We're a remote-first firm based in California, but we work with trades and home services businesses across the country (and are familiar with state/local level taxes).

    Everything runs through a secure client portal, scheduled video calls, and email - which most owners find easier than driving to an office with paper in hand anyway.

  • We do offer full-service bookkeeping, and for clients doing 100K+ in revenue, we do recommend bundling our tax services with a bookkeeping package. Not only will this ensure that you have up-to-date, accurate financials without having to lift a finger, it also keeps us more connected to your business - allowing us to make recommendations or identify tax planning opportunities earlier.

    We do not offer fully outsourced payroll - instead, we recommend clients use Gusto to self-manage payroll. Gusto offers a best-in-class product - they are cheaper and more responsive than CPA firms who offer payroll, and their online portal allows us to easily pull all the payroll reporting we need. By using our referral link, you’ll receive a $100 Gusto credit (note that we receive a referral incentive as well) - and because we have so many clients on Gusto, our clients tend to get great service and support.

  • A mid-year switch is easier than you might expect, and we work hard to ensure the transition is as seamless as possible.

    If you decide to work with us, we’ll request the following:

    • Your prior year tax return

    • Access to your books (a QuickBooks Online invite, for instance)

    • View-only access to systems impacting your financials, such as payroll, banking, etc. - so we can ensure your books are accurate and perform cleanup if necessary

    Note that mid-year is a great time to switch - there's runway to fix things before year-end and get scalable systems in place.

  • Yep - catch-up bookkeeping is routine work for us, and a year behind is nothing to be embarrassed about (we've rebuilt worse).

    To do a rebuild, we request all the same info we’d request for ongoing bookkeeping - access to your accounting system, plus read-only access to your payroll and banking systems, then we clean up from there. Do note that cleanups sometimes surface missed deductions - but sometimes find additional reportable income that hadn’t been previously accounted for. Either way, it’s important to find those items as soon as possible, so that you can report accurate figures on your tax return and understand the actual performance of your business.

Want to see an example of our work? Here’s a case study.

We specialize in working with growing businesses, and as a direct result of the work we’ve done, many of our clients have been able to double or triple in revenue and employee count, all while increasing profitability. Read through the case study below - and imagine the impact that our work could have on your business as you work to grow and scale!

NYC handyman business grew from 250K to ~900K in revenue in just two years

When we started working with this business, the owner had two part-time employees, a loyal customer base, and a great advertising engine - but no idea how much he was making. He knew that his business made money, but the only figure he tracked was his bank balance. And understandably, he was constantly stressed. Once we came onboard, we cleaned up his books for the prior few months, and got him set up with monthly profit reporting. This info allowed him to:

  • Finally find out exactly how much his business earned in an average month, giving him the confidence to move ahead with hiring new employees

  • Understand how much revenue each employee drove on average + calculate an ROI on his advertising spend as he grew

  • Gain clarity on his actual take-home net income every month, enabling him to start saving and investing more confidently

Within 3 months, the owner’s about running his business was drastically reduced. And in 2 years, he’d more than tripled revenue, while also increasing profits.

If we had the space, we could write up plenty of other detailed client case studies like the one above, but I’ll share a couple other summaries below:

  • A landscaping business in Montana went from 1.5M to 2.5M in just 2 years after we revamped their bookkeeping systems and helped leverage bonus depreciation to minimize taxes and allow for reinvestment in equipment that will pay dividends for years to come.

  • A ~750K water tank installation business in Oregon that was 5 years behind on taxes, who saved over 50K in taxes in 2025 after we took over their bookkeeping. After doing their books for the first time, we were able to proactively find tax planning opportunities (after we cleaned up their back taxes).

If you’re serious about growing your business sustainably, keep scrolling down and book a call - we’d love to chat about how we can help your business blow up!

Note: This page was last updated August 2026

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