Appropriate Tax Forms

• The IRS requires electrical contractor businesses to report income and deductions on the form appropriate for the legal structure of the business. The same tax write-offs are available regardless of whether you operate as a sole proprietor, corporation or a limited liability company. If you are a sole proprietor or an owner of an LLC that doesn't elect corporate tax treatment, you ultimately report you electrical contractor income and write-offs on a Schedule C attachment to your personal tax return. If you operate a corporation, your business is a separate taxpayer that files a Form 1120 or 1120A to report the income and write-offs.
  
  

Supplies and Tools

• There is no question that federal electrical contractors require special tools and supplies to effectively complete electrical projects. Both are fully deductible. If the tools you use in your trade have a useful life beyond one year, you must claim the deduction for their purchase price as depreciation, which generally requires you to spread it out over three to five years. The supplies, on the other hand, are deductible in the year you purchase them. For example, if a customer requests that you install a high-end home entertainment system, once you purchase all of the wiring, electrical tape and any other materials you need, you can write the costs off for that tax period.
  
  

Paying Electrical Professionals

• When your business requires hiring workers, the IRS allows you to deduct all salaries you pay to employees for their services. The IRS requires you to withhold federal income tax as well as Social Security and Medicare taxes from each paycheck you provide. You are also responsible for making an additional payment for Social Security and Medicare equal to the contribution of each employee, but these taxes you pay on behalf of employees are fully deductible on a tax return.
  
  

Truck Expenses

• It's likely that you will find it necessary to purchase or lease at least one truck for your electrical contractor business so that you can transport your tools and supplies to each job. When you use the truck solely for business, the IRS allows you to write off all expenses you incur that relate to the truck. This includes gas, oil, repairs and maintenance, lease payments or depreciation, and parking garage rental fees. If you are a smaller business and use the truck for both business and personal purposes, the IRS requires you to allocate your truck expenses, since your personal use is nondeductible. A common and relatively easy way to do this allocation is by comparing the miles you drive during the year for each type of use.