By William Yex, CFP®, CEPA®, Wealth Management Advisor
Whether you run an HVAC company, a plumbing operation, an electrical contracting business, or a landscaping crew — there are legal, IRS-approved strategies that could put tens or hundreds of thousands of dollars back in your pocket.
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If you own a trades business — whether you’re in HVAC, plumbing, electrical, landscaping, construction, or any other skilled trade — you’re probably paying more in taxes than you need to.
Not because you’re doing anything wrong. Because most contractors never get shown the strategies that are specifically designed for business owners like you.
The tax code is full of tools that reward people who own businesses, take risk, and invest in equipment and people. The problem is that most CPAs are focused on compliance — filing your return correctly — not on proactive planning.
That’s the gap this article is designed to fill. Here are nine strategies that trades business owners use to legally reduce what they owe — without loopholes or gray areas.
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- Your S-Corp structure may be costing you money
If you’re running your contracting business as a sole proprietor or single-member LLC without an S-Corp election, you’re likely paying self-employment tax (15.3%) on every dollar of profit — on top of income tax.
With an S-Corp structure, you split your income into a reasonable salary — subject to payroll taxes — and a distribution, which is not. For a business generating $300,000 in net profit, this single change can save $15,000–$25,000 per year.
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Quick example A contractor nets $350,000. Without S-Corp: pays SE tax on the full amount. With S-Corp, pays himself a $120,000 salary and takes $230,000 as a distribution. Estimated annual savings: $19,000+. |
- A SEP IRA lets you shelter up to $70,000 per year
A SEP IRA lets business owners contribute up to 25% of compensation, capped at $70,000 for 2025. Every dollar contributed reduces your taxable income dollar-for-dollar.
For an owner in the 32% federal bracket, maxing out a SEP IRA could mean $22,000+ back in your pocket — while that money grows tax-deferred for retirement.
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Strategy 2 SEP IRA Maximum Contribution |
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Contribution limit: up to $70,000 (2025). Deadline: your tax filing deadline including extensions. Works best for owners with few or no full-time employees. ✓ Potential tax savings: $15,000–$22,000/yr |
- Cash balance plans — the strategy your CPA probably hasn’t mentioned
If you’re in your 40s or 50s, profitable, and feeling behind on retirement savings, a cash balance plan may be the most powerful tool available to you. These are IRS-qualified defined benefit plans that allow contributions far beyond a SEP IRA or 401(k) — sometimes $150,000 to $300,000 per year depending on your age.
Every dollar contributed is a tax deduction. For a 52-year-old contractor netting $500,000, pairing a cash balance plan with a 401(k) could reduce taxable income by $200,000 or more in a single year.
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Why this works for trades businesses specifically Cash balance plans are most effective when the business has few employees relative to the owner’s income. Many contracting companies are structured with the owner and a small crew — which keeps the cost of funding employee benefits manageable while the owner captures most of the tax benefit. |
- Section 179 and bonus depreciation on equipment and vehicles
Every truck, trailer, piece of equipment, or tool you buy for the business can potentially be deducted in full the year you buy it — rather than depreciated slowly over five to seven years.
Section 179 allows you to immediately expense up to $1,160,000 in qualifying equipment (2023 limit). Bonus depreciation can layer on additional deductions. For a landscaping or construction company spending $200,000 on equipment in a given year, the difference between immediate expensing and standard depreciation can be $30,000 or more in tax savings in year one.
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Strategy 4 Section 179 Expensing |
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Covers vehicles, equipment, tools, and technology used in the business. Must be placed in service during the tax year. Check with your CPA on luxury auto limits for vehicles. ✓ Potential year-one savings: $20,000–$50,000+ |
- Tax-loss harvesting on your investment accounts
If you have a taxable investment account alongside your business income, tax-loss harvesting is a strategy worth reviewing annually. It involves selling investments that are down to realize a loss, which offsets capital gains elsewhere in your portfolio.
For a trades business owner with $500,000+ in investable assets, this strategy is often worth $3,000–$10,000 or more in annual tax savings — with no meaningful change to your long-term investment exposure.
- The QBI deduction — up to 20% of business income
The Qualified Business Income (QBI) deduction allows eligible self-employed business owners and pass-through entities (sole props, S-Corps, partnerships) to deduct up to 20% of qualified business income from their taxable income.
For a contractor netting $400,000, this deduction could reduce taxable income by $80,000 — a tax savings of $24,000+ at the 30% combined rate. Income thresholds and W-2 wage limitations apply, so planning around this deduction with a CPA is important.
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Note on the QBI deduction This deduction is currently set to expire after 2025 unless Congress extends it. If you haven’t reviewed your eligibility recently, now is the time — it’s one of the most valuable deductions available to trades business owners. |
- Health Savings Accounts (HSAs) — the triple tax advantage
If you’re on a high-deductible health plan, an HSA lets you contribute pre-tax dollars, grow them tax-free, and withdraw tax-free for qualified medical expenses. No other account in the tax code offers all three.
For 2025, contribution limits are $4,150 for individuals and $8,300 for families. Contributions roll over year to year, and after age 65 you can use HSA funds for anything (taxed like an IRA, but without penalty).
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Strategy 7 HSA Triple Tax Advantage |
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Pre-tax contributions + tax-free growth + tax-free withdrawals for medical expenses. Pairs with a high-deductible health plan. Family maximum: $8,300 (2025). ✓ Potential lifetime value: $50,000–$200,000+ |
- Hiring family members
If you have a spouse, children, or other family members who perform real work in your business, paying them a reasonable wage is a legitimate tax strategy. Their wages are deductible to the business, and if they’re in a lower tax bracket, the income is taxed at their rate — not yours.
For children under 18 working in a sole prop or single-member LLC, wages may also be exempt from FICA taxes. This is a strategy that works particularly well for family-owned contracting businesses where spouses handle bookkeeping, scheduling, or customer service.
- Cost segregation studies for real property
If your contracting business owns the building it operates out of — or any commercial real estate — a cost segregation study can dramatically accelerate your depreciation deductions.
A cost segregation study breaks down the components of a building (lighting, flooring, fixtures, site improvements) and reclassifies them into shorter depreciation schedules — 5, 7, or 15 years instead of 39. For a building purchased at $1 million, this can generate $100,000–$200,000 in additional deductions in the first few years.
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Best candidates for cost segregation Trades businesses that own their shop, warehouse, or office building. Typically worth pursuing for properties valued at $500,000+. The study typically costs $5,000–$15,000 and often generates 5–10x that in first-year tax savings. |
The Bottom Line
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None of these strategies require aggressive tax positions or gray areas. They’re tools that already exist in the tax code — specifically for business owners who take risk, invest in equipment, and build something.
The difference between a contractor who uses these strategies and one who doesn’t isn’t the size of the business. It’s having the right team in your corner.
If you’d like to walk through which of these strategies applies to your specific situation, I’m happy to have that conversation. No pressure, no pitch — just a working session to see where the opportunities are.
This article is for informational purposes only and does not constitute tax or legal advice. Please consult with a qualified CPA or tax professional regarding your specific situation.
