Bookkeeping for contractors and tradespeople

How money moves on a job

A contractor’s money cycle has a shape, and most bookkeeping trouble comes from ignoring it. A customer signs, and you take a deposit. You buy materials, often before the deposit clears. You pay a helper or a sub on Friday. You finish, send the final bill, and wait. Sometimes the last payment comes in thirty days. Sometimes it comes after three phone calls.

Each of those steps touches the bank on a different day. If you keep cash-basis books, which almost every one-person trade business does, you record income when the money reaches your account and expenses when the money leaves it. That is simple, and it is what the IRS expects on Schedule C. But it means one job can spread across two months, or across two tax years, and the bank balance alone will not tell you which jobs made money.

The fix is the habit from the top of this page: every transaction gets a job name. A deposit is “Hendricks deck, deposit.” A trip to the lumber yard is “Hendricks deck, materials.” Then the job report shows you the real profit, and the tax report still shows the right totals by Schedule C line.

Deposits, change orders and the final bill

Record a deposit as income on the day it lands. Do not wait for the job to finish. On the cash basis, a deposit received in December is income in December, even if you pour the footings in January. This catches people every year: a busy December full of deposits can raise the tax bill for a year in which the work had not been done yet. Plan for it.

If a customer cancels and you refund part of a deposit, record the refund as a negative income entry against the same job, on the day it leaves your account. Do not delete the original deposit. The deposit happened, and the refund happened, and both belong in the record.

Change orders are just more income for the same job. When the final payment comes, record the whole amount the customer paid, including the materials you passed through. The materials themselves are already in your books as an expense. Recording both sides keeps your gross receipts matched to what customers actually paid you, which is what a Form 1099-NEC from a commercial customer will show.

In Righto, you can enter the final bill as a receivable when you send it. Then you can see who still owes you and how long it has been, and the income is still counted on the day the money arrives, because the reports are cash basis.

Materials, tools and the truck

Materials you buy for a specific job go on supplies, line 22. If you keep a stock of parts that you sell to customers, such as an electrician who carries fixtures, the IRS may treat that as inventory, which goes in Part III, cost of goods sold. Most small contractors do not keep real inventory. If you are unsure, ask your preparer once and then be consistent. Note that Righto does not track inventory counts, so if you need them, keep a simple year-end count on paper.

Tools are where people overthink things. The IRS lets most small businesses deduct any item or invoice of $2,500 or less in the year you buy it, under the de minimis safe harbor in the tangible property regulations. You make the election with a statement on your return each year. So a $340 impact driver or a $1,900 tile saw is a supplies expense, and you are done.

Larger items, such as a $9,000 trailer or a compact loader, go on depreciation, line 13. Section 179 or bonus depreciation can often let you deduct much of the cost in the first year, but the rules change often and the choice affects later years. Publication 946 has the details. Record the purchase in your books with the date and price, and let your preparer choose the method.

The truck is the biggest decision. You can use the standard mileage rate or your actual costs, and you must choose the standard rate in the first year you use the truck for business if you want to use it at all. For 2026, the standard rate is 72.5 cents a mile from January 1 to June 30 and 76 cents a mile from July 1 (IRS Announcement 2026-11). Heavy work trucks with high fuel and repair costs often do better on actual costs. Either way, keep a mileage log with dates, because you need business miles to split any costs. Publication 463 explains the rules, and the mileage tool handles the two 2026 rates.

Driving from home to your first job site is often business if your home is your main place of business. Driving from home to a regular workplace is commuting. If your office and tools live at home and you go to different sites each day, those drives usually count.

Helpers and subcontractors

People you pay to work on jobs, who are not your employees, go on contract labor, line 11. Get a Form W-9 from each one before you pay them. It costs nothing on the day and saves a scramble in January.

For payments made in 2026, you must file a Form 1099-NEC for anyone you paid $2,000 or more during the year for services. Before 2026 the threshold was $600. Payments made by credit card or through a payment app that issues 1099-K forms are usually reported by that company, not by you. Ask your preparer if you are unsure.

Righto does not run payroll. If you have employees with withholding, use a payroll service and record the totals it reports.

A worked example

Dana is a one-person remodeler who takes a bathroom job priced at $14,800.

The job brought in $15,400. Direct costs were $4,835. Dana also drove 210 business miles for the job, worth $152.25 at the first-half 2026 rate. The saw is a general tool, not a job cost, so Dana leaves it off the job report but deducts it as a supply. The job profit before Dana’s own time is about $10,400. Dana spent 64 hours on site, so the job paid about $162 an hour before overhead and tax. That number is the reason to tag jobs. The next bath quote can start from it. The markup and break-even tools help turn it into a price.

Rented equipment, such as the dumpster, a lift or a floor sander, goes on line 20a. Rent for a shop or storage unit goes on line 20b.

Setting money aside for tax

Nobody withholds tax from your jobs. You pay self-employment tax of 15.3% on 92.35% of your net profit (the Social Security part stops at a wage base of $184,500 for 2026), plus income tax. Publication 334 covers the basics. For many contractors, 25 to 30 percent of profit is a reasonable amount to set aside, but your number depends on your household.

A practical method: each time a payment lands, move a fixed share to a separate savings account. Then pay quarterly estimates from that account on the dates in the estimated tax dates tool, and check the size of the payments with the self-employment tax calculator. Publication 505 explains estimated tax and the safe harbors that avoid a penalty.

Winter is slow for many trades. Before it starts, run the cash runway tool with your fixed costs: insurance, the truck payment, phone, and licenses. Then you know how many slow weeks you can carry.

Common mistakes

• Mixing personal and business on one card. The lunch, the home-improvement run for your own house, and the job materials all on one statement. Use a separate card for the business. If something slips through, mark it as owner draw, not as an expense.
• Recording only the deposit, or only the final. Then the job looks like a loss or a windfall. Record every payment against the job.
• Deducting the whole truck twice. If you use the standard mileage rate, you cannot also deduct gas, repairs or depreciation. Parking and tolls are still separate.
• No W-9 until January. Get it before the first payment.
• Ignoring the materials markup. If you charge the customer for materials, that charge is income. The cost is an expense. Do not net them.

A weekly and monthly routine

Once a week, at the same time, import the business bank and card statements. Righto reads CSV, OFX and QFX files, and PDF statements, including scanned PDFs read on your Mac (importing statements). Then check the new transactions and add the job name to each one. Rules do most of this after a few weeks: “Supply house, card ending 4471” can always go to line 22 (rules). You add only the job name.

Once a month, reconcile each account to the statement ending balance (how to reconcile). When the books match the bank to the cent, you can trust the job reports. Then look at open receivables and call the customers who are past due.

Each quarter, check your profit to date and pay your estimate.

What to hand your preparer

At year-end, Righto builds a package with a profit and loss by Schedule C line, the transaction detail, and your account reconciliations (year-end). Add:

• Your mileage log, with total business miles split before and after July 1.
• A list of tools and equipment over $2,500, with dates and prices.
• Copies of the 1099-NEC forms you filed and the W-9s behind them.
• Any 1099-NEC or 1099-K forms you received.
• Your estimated tax payments with dates.
• Truck purchase records if the truck is new this year.

The Schedule C categories tool and the Schedule C instructions are useful when an expense does not fit an obvious line. If you want help with the weekly work, you can connect your own AI agent to Righto at an access level you choose (agents). Every change it makes is recorded, and you can undo it.

General information, not advice for your situation. Ask a tax professional about your own return.