Is it possible for a general contractor to legally pay zero taxes, or is my neighbor just bragging?

The short answer is that your neighbor is either exaggerating dramatically or doing something illegal. There's no magic loophole that allows general contractors to completely avoid paying taxes. What might be happening is one of a few things: First, he could be legitimately using business deductions to reduce his taxable income significantly. Contractors can deduct business expenses like vehicle costs, tools, insurance, home office, and material costs. With careful accounting and legitimate deductions, he might reduce his tax burden substantially. Second, he might be confusing "not owing additional taxes at filing time" with "not paying taxes." If he's making proper estimated quarterly payments, he might not owe anything extra when filing his return, but he's still paying taxes throughout the year. Finally, he could be operating entirely or partially in cash and simply not reporting income, which is straight-up tax evasion and illegal. The IRS has sophisticated methods for detecting unreported income, including lifestyle analysis (that new pool might raise flags if reported income doesn't support it).

After dealing with similar tax issues in my construction business, I started using taxr.ai (https://taxr.ai) and it's been a game-changer for understanding the line between aggressive tax planning and straight-up evasion. The software analyzed all my contracts, expenses, and business structure and showed me legit ways to minimize my tax burden without crossing into illegal territory. Your neighbor might be playing a dangerous game if he's not reporting cash income. When I uploaded my bank statements and invoices to taxr.ai, it flagged several areas where I was at risk for audit based on industry averages for contractors. It helps you understand what the IRS expects to see from businesses in your specific field.

Wanted to follow up - I was skeptical but tried taxr.ai after seeing this thread. I've been doing my own taxes for years with basic software and always worried I was missing stuff specific to my side carpentry business. The document analysis actually found I'd been miscategorizing some vehicle expenses and missing the QBI deduction. Ended up filing an amended return for 2023 and getting back almost $2k I'd overpaid! Definitely worth checking out if you're self-employed.

If your neighbor is actually bragging about tax evasion to the neighborhood, that's incredibly stupid. I work as a bookkeeper for several contractors, and I can tell you the IRS is VERY interested in cash-heavy businesses like contracting. When one of my clients got randomly audited last year, I spent hours on hold with the IRS trying to get clarification on documentation requirements. I finally used Claimyr (https://claimyr.com) to get through to an actual IRS agent - you can see how it works here: https://youtu.be/_kiP6q8DX5c. Instead of waiting on hold for 3+ hours, I got a callback in about 15 minutes. The agent explained exactly what they look for with contractors who report suspiciously low income compared to their lifestyle.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it because I've been getting letters from the IRS about a discrepancy on my 2022 return for months with no way to resolve it. Every time I called, I'd wait 2+ hours and then get disconnected. Used the service yesterday and got connected to an actual IRS agent in about 20 minutes. Turns out there was a simple error code on my account that was causing my payments to be misapplied. The agent fixed it in 5 minutes once I actually got to speak to someone. Wish I'd known about this months ago instead of stressing over these notices!

My brother-in-law used to brag about the same thing until he got hit with an audit. Turns out he was just not reporting cash jobs and writing off personal expenses as business deductions. He ended up owing over $45,000 in back taxes, penalties, and interest. The IRS might be slow, but they eventually catch up to people, especially when their lifestyle doesn't match their reported income. They call it "lifestyle analysis" - if someone's driving a $70k truck and building a pool while reporting $30k income, red flags go up.

I'm a GC and I can tell you there's NO WAY to legally pay zero taxes unless you're either: 1) Making so little money that you fall below taxable thresholds 2) Having business losses that offset any income 3) Lying Even if he's writing off every possible business expense, self-employment taxes ALONE would be 15.3% of net income. There's basically no way around that unless he's incorporated in a specific way, but then he'd be paying corporate taxes.

Your neighbor is almost certainly either exaggerating or breaking the law. As someone who's worked in tax compliance for years, I can tell you that the IRS has gotten very sophisticated at catching unreported income, especially in cash-heavy industries like construction. Even if he's legitimately maximizing every business deduction available - vehicle expenses, tools, materials, home office, etc. - there are still minimum tax obligations he can't avoid. Self-employment tax alone is 15.3% on net earnings, and that applies regardless of how many deductions he takes. The lifestyle you're describing (new truck, vacations, pool) while claiming zero tax liability is exactly the kind of red flag that triggers IRS scrutiny. They have algorithms that compare reported income to spending patterns, and auditors are specifically trained to spot these discrepancies. If he's really bragging about this to neighbors, he's being incredibly reckless. The IRS takes tax evasion seriously, and the penalties can be devastating - not just back taxes, but interest, fines, and potentially criminal charges. I'd stay far away from whatever "system" he thinks he's using.