Top Tax Write-Offs For HVAC Contractors

Are you an HVAC contractor who's trying to save money on taxes? Of course, you are! All furnace and air conditioner contractors – and, well, let's face it, everyone – want to reduce their taxes.

Fortunately, we have some tips to help. We work with excellent accountants who know some essential tax write-offs all HVAC contractors should use.

Check out some of the top write-offs our friends at Asnani CPA, Passageway Financial, Performance Financial, Whyte CPA, BluPrint CPA, Whittmarsh, and Freedom from Accounting use with their clients.

Top Ways HVAC Contractors Can Save Taxes and Grow Their Business

Leverage an S-Corp to Lower Self-Employment Taxes

One of the most effective ways to reduce your tax burden is by setting up an S-Corporation (S-Corp). Without this tax structure, you'll pay a 15.3% self-employment tax on your business's net profits. However, with an S-Corp, you pay yourself a reasonable salary, subject to self-employment taxes, while the remaining profits can be taken as distributions, which are not subject to those taxes.

This strategy requires careful planning to ensure that your salary is deemed "reasonable" by the IRS. Incorrect classifications can lead to penalties, but this method can result in significant savings when done right.

Contribute to a Retirement Plan and Write Off Up to $69,000

Setting up a retirement plan, such as a 401(k), SEP IRA, or defined benefit plan, is an excellent way to save for the future and reduce your tax obligations. Contributions to these plans are tax-deductible and not subject to self-employment taxes. Depending on the plan, you could write off up to $69,000 annually, significantly lowering your taxable income. If you have employees, these plans can also serve as a great benefit to attract and retain top talent.

Our team can help you choose the best retirement plan based on your business and financial goals.

Hire Your Kids and Teach Them Valuable Skills

Hiring your minor children to work in your HVAC business can offer a double benefit: it reduces your tax liability and provides a valuable learning experience for them. When you hire children under the standard deduction limit, their income is not taxed, and their wages are tax-deductible as a business expense.

Possible tasks for your kids could include cleaning trucks, managing social media, or assisting with marketing efforts. This strategy lowers your tax burden and provides a solid foundation for your children's financial literacy and work experience.

Deduct Work Vehicles Used for Business

The trucks and vans you use for your HVAC business can also provide significant tax deductions. You can deduct the full cost if these vehicles are used solely for business purposes. It's essential to track business-related mileage for accurate deductions for cars that serve both business and personal use.

Tip: To maximize your deduction, you can either use the IRS standard mileage rate (65.5 cents per mile for 2024) or calculate actual vehicle expenses, such as fuel and maintenance, whichever yields the higher deduction.

Implement Year-End Tax Planning to Maximize Savings

Strategic year-end tax planning is essential for reducing your overall tax liability. By working with a CPA experienced in the HVAC industry, you can uncover opportunities related to tax-advantaged investments, depreciation schedules, and expense management that can help lower your tax burden.

Tip: Start planning early and remain consistent throughout the year. A proactive approach ensures you don't miss out on valuable tax-saving opportunities.

Frequently Asked Questions

Can I deduct the HVAC systems purchased for installation?

Yes, equipment purchased for client installations, including furnaces, air conditioners, and related materials, can be deducted as a cost of goods sold.

What about diagnostic tools and equipment?

Diagnostic tools, such as pressure gauges, leak detectors, and refrigerant scales, can either be deducted as business expenses or depreciated over time, depending on their value and use.

Is an LLC or S-Corp better for HVAC contractors?

For many HVAC contractors, forming an S-Corp offers greater tax savings than an LLC taxed as a sole proprietor. S-Corps allow you to avoid self-employment taxes on distributed income, which can be especially beneficial for higher-income earners.

How do I switch from a Schedule C to an S-Corp?

To switch to an S-Corp, you must submit IRS Form 2553 by March 15 of the tax year in which you want the S-Corp status to take effect. You can find detailed filing instructions on the IRS website.

By implementing these strategies, HVAC contractors can reduce their tax burden while growing their business. Whether leveraging an S-Corp structure, contributing to a retirement plan, or using tax-deductible business expenses, proactive tax planning can lead to substantial savings. Always consult a professional to ensure you take full advantage of these strategies and stay compliant with tax laws.