Going out on your own is a big step. You know the trade, but nobody teaches you the tax side of running a construction business. The first year is where most expensive mistakes happen, and many of them are hard to undo later. Here are the seven we see most often.
Not paying quarterly estimated taxes
Nobody withholds taxes from your business income, so the IRS expects you to pay four times a year. Skip it and you'll owe a large bill in April plus an underpayment penalty.
A simple rule: set aside 25–30% of every payment you receive in a separate savings account. To avoid penalties, pay at least 90% of this year's tax, or 100% of last year's tax (110% if your income was over $150,000). See our guide to quarterly estimated taxes.
Forgetting about self-employment tax
As an employee, your employer paid half of your Social Security and Medicare. Now you pay both halves: 15.3% on most of your net profit, on top of income tax. New contractors are often surprised that a $100,000 profit can mean a tax bill well over $25,000.
Mixing business and personal money
Running everything through one personal account makes it hard to prove deductions, hard to see if jobs are profitable, and can weaken the liability protection of an LLC. Open a separate business checking account and card on day one.
Treating employees like subcontractors
Calling someone a "sub" doesn't make them one. If you control how, when and where they work and supply their tools, the IRS may consider them an employee. Misclassification can lead to back payroll taxes, penalties and workers' comp problems.
Not collecting W-9s or filing 1099s
Get a Form W-9 from every subcontractor before you pay them. For payments made in 2026, you generally need to file a Form 1099-NEC for any non-corporate sub you paid $2,000 or more (up from $600). Missing 1099s carry penalties per form.
No mileage log
Your truck is likely one of your biggest deductions, but only if you can prove business use. Use an app or keep a simple log of date, destination, purpose and miles.
Waiting until April to talk to an accountant
By April, most of the opportunities to lower last year's taxes are gone. Choosing your business structure, timing equipment purchases and setting up retirement accounts all have to happen during the year.
Already made one of these mistakes?
Most can be fixed. Late 1099s can be filed, missed estimates can be caught up, and errors on past returns can be corrected with an amended return. It's always cheaper to fix early than after an IRS notice.
Starting your construction business?
We help new contractors set up the right structure, a simple bookkeeping system and a quarterly tax plan from day one. And yes, we're taking new clients.
Book a Free 30-Minute CallYour first-year tax setup checklist
- ✅ Get an EIN from the IRS (free at irs.gov)
- ✅ Open a separate business checking account and credit card
- ✅ Decide on your business structure (see Should your construction business be an LLC?)
- ✅ Collect a W-9 from every subcontractor before paying them
- ✅ Start a mileage log
- ✅ Set aside 25–30% of income for taxes and pay quarterly
- ✅ Pick a bookkeeping system and stick to it