Can I deduct building materials that are purchased for a job then billed to customers?

What you're describing is essentially "Cost of Goods Sold" or COGS. Yes, you absolutely can and should deduct the building materials you purchase for jobs, even when you bill customers for them. Here's how it works: When you buy materials for $200 and bill your customer $250 for those materials plus $300 for labor, your income is the full $550. But you get to deduct the $200 as a business expense. So you're only paying taxes on your actual profit, not on money that just passed through your hands to pay for materials. Make sure you're keeping good records of all material purchases with receipts. You'll report both your total income (including what customers paid for materials) and your expenses (including those materials costs) on your Schedule C. This gives you a true picture of your business profit, which is what you'll pay taxes on.

I was in the exact same situation when I started my remodeling business! I spent hours on the phone with different people trying to figure this out. Then I found this tool called taxr.ai (https://taxr.ai) that helped me sort through all my expenses, including materials. It analyzes your business expenses and tells you exactly what you can deduct. The way it worked for me is I uploaded my receipts and bank statements, and it automatically categorized everything - materials, tools, gas, etc. It even told me which expenses might raise red flags with the IRS. For self-employed folks like us, it seriously takes the guesswork out of tax prep.

Just wanted to update that I tried taxr.ai after seeing it mentioned here. It was exactly what I needed for my lawn care business! It identified so many deductions I was missing - apparently my work boots and uniforms are deductible, who knew? Already saved me about $1,400 in deductions I would have missed. The materials tracking feature was super helpful too - it has a specific category for "materials billed to customers" that handles exactly the situation we're discussing here.

If you're having trouble getting clear answers about tax deductions for your business, you might want to try Claimyr (https://claimyr.com). I used it to actually get through to an IRS agent who answered all my questions about handling materials and labor as a contractor. You can see how it works here: https://youtu.be/_kiP6q8DX5c Before finding this service, I spent DAYS trying to get through to someone at the IRS. Their automated system is basically designed to make you give up. With Claimyr, I had an IRS agent on the phone within 45 minutes who confirmed exactly how to handle materials on my Schedule C and gave me personalized advice for my situation.

Update: I have to eat my words about Claimyr. After dismissing it as a scam, I was still desperate for tax help and gave it a shot. I'm shocked to say it actually worked perfectly. Got connected to an IRS agent in about 35 minutes who explained exactly how to handle my materials purchases as a contractor. The agent confirmed that YES, materials are deductible even when billed to customers, and explained how to properly document everything. Saved me hours of frustration and probably an audit down the road!

I'm a contractor and yes, materials are 100% deductible even when you bill customers for them. The key is understanding your business model: If you're buying materials for a specific job, those are direct expenses. You record the FULL payment from your customer as income, then deduct the materials as a business expense. It all evens out in the end. Some contractors prefer to separate materials and labor on invoices, while others provide a single project price. Either way, for tax purposes, materials you purchase are deductible expenses against your business income.

Anyone have recommendations for good tax software that handles this situation well? I used TurboTax last year and it was confusing trying to enter all my materials costs.

I went through this exact same confusion when I started my painting business! The key thing to remember is that you're running a business, not just passing money through. Even though you're billing customers for materials, you're still the one purchasing them, taking the risk if they get damaged or stolen, and managing the whole process. Keep detailed records of every material purchase with receipts. I use a simple system where I photograph receipts with my phone and store them in folders by month. When tax time comes, you'll report your total revenue (including what customers paid for materials) and then deduct your actual material costs as business expenses. One tip that helped me: think of it like a restaurant. They buy ingredients, mark them up, and sell meals to customers. The ingredients are still deductible business expenses even though customers ultimately pay for them through the meal price. Same principle applies to your materials.

Great question! I had the same confusion when I started my contracting business. The answer is definitely YES - you can and should deduct building materials even when you bill customers for them. Here's the simple way to think about it: You're not just "passing money through" - you're actually purchasing inventory for your business, taking on the financial risk of that purchase, and then selling it as part of your service. The fact that you recover the cost from customers doesn't change that it's a legitimate business expense. On your taxes, you'll report the full amount customers pay you (materials + labor) as income. Then you deduct what you actually paid for those materials as business expenses. This gives you the correct taxable profit. Keep all your receipts organized by job or by month - whatever system works for you. I personally keep a simple spreadsheet with columns for date, supplier, job name, material type, and amount. Makes tax time much easier! The IRS sees this all the time with contractors, so don't worry about raising red flags. Just make sure you have good documentation and you're golden.

Yes, you can absolutely deduct those building materials as business expenses! This is a super common question for new contractors and handymen. Here's the simple breakdown: When you buy $200 in drywall and lumber for a job, then bill your customer $250 for those materials plus your labor costs, you're running a legitimate business transaction. You report the full $250 (plus labor) as business income, then deduct the $200 you actually paid for materials as a business expense. Think of it this way - you're not just a middleman passing money through. You're purchasing business inventory, taking on the financial risk of that purchase, storing/transporting the materials, and providing the service of sourcing the right materials for the job. That's all legitimate business activity. The key is keeping good records. Save every receipt from Home Depot, Lowe's, lumber yards, etc. I'd recommend setting up a simple system now - either a spreadsheet or even just a shoebox for receipts organized by month. You'll thank yourself come tax time! Don't worry about this being a red flag with the IRS - contractors deducting materials they bill to customers is extremely common and expected. Just make sure you have documentation for everything you claim.

I'm dealing with this exact same situation in my electrical contracting business! What really helped me understand it was thinking about it from a cash flow perspective. When I buy $300 worth of wire and outlets for a job, that money comes out of MY business account. I'm fronting that cost, storing the materials, transporting them to the job site, and taking the risk if they get damaged or stolen before I can use them. Then when I bill the customer $350 for those materials (plus my labor), I'm recovering my cost plus a small markup for the service of sourcing and managing those materials. The IRS sees this as: Business Income = $350, Business Expense = $300, Taxable Profit from materials = $50. Plus whatever profit I made on labor. One thing that helped me stay organized - I started taking photos of receipts immediately when I buy materials and store them in a folder on my phone labeled with the month. At the end of each month, I transfer them to a computer folder. Makes tax prep so much easier than digging through a pile of paper receipts! Keep good records and don't stress about it - this is standard operating procedure for contractors and the IRS expects to see these deductions on Schedule C.

I'm a newer member here but I've been lurking and reading through similar questions, and I just want to echo what everyone else is saying - yes, absolutely deduct those materials! I started my own home repair business about 8 months ago and had the exact same confusion. What finally made it click for me was when someone explained it like this: You're not just a payment processor - you're running a real business. You're using your credit/capital to purchase materials, you're taking on the risk of damage or loss, you're managing inventory, and you're providing the expertise to know what materials are needed for each job. The fact that you pass the cost along to customers doesn't make it any less of a legitimate business expense. Restaurants buy ingredients and charge customers for them in meal prices, but those ingredients are still deductible food costs. Same principle applies to your lumber, drywall, and paint. I keep a simple Google Sheet with columns for Date, Vendor, Job Description, Materials Cost, and Customer Billing Amount. Makes it super easy to see both sides of the transaction when tax time rolls around. The key is just staying organized from the start - trust me, trying to reconstruct this stuff months later is a nightmare! Don't overthink it, and definitely don't let tax anxiety stop you from claiming legitimate business deductions. You're running a real business and incurring real expenses. Deduct them!