The Write-Off Trap: How Misguided Tax Advice Can Ruin Contractors

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ℹ ABOUT THIS EPISODE

Your insurance premiums don't have to feel like surprise change orders. Wade Carpenter (CPA) and Stephen Brown (bonding/insurance expert) reveal actionable strategies to control your construction business insurance costs in 2026. 

Learn what's driving premium increases, common contractor mistakes that spike rates, and proven tactics to get better coverage for less. 

From vehicle insurance to workers' comp, discover how to work with your agent proactively instead of reactively to protect your cash flow and profitability.

⌚️ Key moments in this episode:

• 00:00 Why Premiums Keep Rising
• 00:22 What Drives Pricing
• 02:42 Insurance Is Not A Commodity
• 04:50 Hidden Premium Triggers
• 08:46 Claims History And Hiring
• 11:17 Best Contractors Win Rates
• 13:06 Proactive Service Mindset
• 16:19 Hard Versus Soft Markets
• 20:19 Year Round Cost Control
• 23:41 Key Takeaways And Wrap

The Contractor Profit Blueprint is a complete guide that breaks down exactly how to identify where your money's going and start keeping more of it. This isn't theory. It's the same framework I use with contractors I work with every single day.

Head to profitfirstconstruction.com/blueprint to download your free copy. 

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

Wade Carpenter: [00:00:00] Contractors hear the phrase, " Just buy it and write it off" all the time. What almost nobody explains is the math behind that potential mistake and the half of the story most contractors never see. Today we're talking about how the advice from your buddy on the job site may actually be wrong.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter & Company CPAs alongside Stephen Brown with McDaniel Whitley Bonding and Insurance. And Stephen, this was your brainchild. What are we getting into today? 

Stephen Brown: Well, I don't know. It just really hit me that in 2026, it seems like the theme of our podcasts are certain myths. You have to cut costs to make money. Right now it's just the frustration I see all the time between, and we were talking about this, not truly knowing when to buy something, when to lease something.

You hear about all the write-offs for taxes and what does that really mean, Wade? Then you've [00:01:00] got contractors that are just absolutely obsessed with living through their company and writing off as much as they possibly can as a business expense. So how do you look at it non emotionally.

I know nobody wants to pay taxes, but I know a lot of contractors who have gone bankrupt by not paying taxes and going too far to avoid paying taxes.

So this whole thing about writing it off, what exactly does that mean and how do you figure out whether that's truly something that makes sense for you and your company?

Wade Carpenter: Well, I know when you started kicking this around, it's something I talk about all the time. And obviously they expect from a CPA that yeah, well that's just, I never need to pay taxes, you know, how do I not pay taxes?

And it's not that contractors always get bad advice. Sometimes it's incomplete advice. And if that's the only lens they're looking through, a little tax knowledge can be dangerous. This is probably the first of two different episodes we're gonna [00:02:00] do on this. In the second episode we're gonna show some of the math behind some of that potential mistakes. Sometimes that little tax knowledge can be dangerous.

But you raised a lot of good points, the ones that are thinking, okay, well should I repair this, replace this, put it in context. I mean, I know from a CPA standpoint, it's one thing from a bonding company standpoint, or your bank, are you gonna bond on that truck? You know, you're not really bonding on that truck. What's your perspective on this one? Because you started this one off. 

Stephen Brown: Well, you get absolutely no bond credit for property and equipment. And then you look at the financial statement, it's depreciated down significantly to what actually the fair market value is.

When I say fair market value I just say, you assume you sell it at a fire sale price, because you never know what the economy's gonna be doing or when you're gonna have to unload your assets, so to speak.

So it is a downer, but from a bonding standpoint, Wade, you [00:03:00] get absolutely no bond credit for the value of your property and equipment.

Wade Carpenter: True. I know there's one that I'm working on right now that we've been talking about. The guy is trying to get bonded for the first time, really, and he is convinced, he's like, I'm just gonna put all this equipment on there and we're gonna write it up. You know, it's like, well, number one, that doesn't work that way.

But number two, the job site tax advice from your buddy sitting on the back of the tailgate. It's like job site medical advice. I guess somebody always knows a guy who knows another guy that wrote something off.

Aw, you're smiling, I see. You're, you know, we got equipment dealers that they sell their trucks like Home Depot sells tools. They're not in the business to say, you know, telling you not to buy something. Is it smarter to buy, replace, all that stuff? And I know you sort of threw a personal situation at me when we first started talking about this. I thought that hit home for a lot of contractors, the guy that knows the guy and it just, it's rampant.

It's like, okay, I can lease it and write it [00:04:00] off and replace it every single year and get me a brand new truck. What do you think about this? 

Stephen Brown: It's gotta be frustrating, you know? You give them advice and you know the person, you know what they wanna hear. This whole idea is if I run it through my business and I write it off, then it's really not affecting me. It's just a business cost. And by the way, I hate paying business taxes. These corporate taxes just absolutely kill me. And why should I pay for them in my business and then personally?

But I think maybe another way of looking at it is. I don't know if you remember that story I told you it was a long time ago. A huge contractor customer of my uncle's had sold their business and the son that had been running it extremely well, extremely efficiently, I just had lunch with a new contractor, friend of mine, and I took him to lunch and I just asked him, what one piece of advice would you give them about running their company? He started thinking about it. He said, well, I'll tell you the best advice [00:05:00] my dad ever told me is that if you use a shovel on a job, you are gonna wear out that shovel, you're gonna break it, you're gonna lose it, but that shovel has to be replaced.

If you're accounting to the way that you realize that from your profits, the things that you are not anticipating like a shovel have to be replaced then you're not operating your construction company properly.

Wade Carpenter: That's absolutely great advice. I know you were sort of putting this in your own perspective. You got a car that could keep going for a long time, but should you repair or replace, those kind of things.

I was just gonna throw one of the myths that I hear all the time is about, okay, if it's over 6,000 pounds, I hear I can write that off. It doesn't matter. It does not mean that truck is actually free.

Stephen Brown: What is this 6,000 pound rule you're talking about? 

Wade Carpenter: So there's an IRS rule about passenger cars and trucks and there's like SUVs, and I'm not gonna get too deep into that. You know, if it's [00:06:00] over 6,000 pounds, I could write it off immediately.

And it's not that the advice is completely wrong. It's more that they have half the story. And I think that's partly the problem is they hear something from the guy who knows the guy that said they replace their truck every year, which, you know, yeah, you can do.

But when we get into the second episode, we're gonna find out some of that math really comes back to bite the cash flow of a lot of these contractors.

So I'd like you to sort of dive into whatever your questions are. Repair, replace, I mean, yeah, we'll get into the 6,000 pound rule a little bit, maybe on the next time. But what are you hearing out there that people are asking, what should I repair or replace? Absolutely agree with your, you know, like replacing that shovel.

Stephen Brown: Buying, leasing, renting equipment. I have certain customers that rent just about everything. They have very huge operations. They own very little equipment. Their logic is that with the rental equipment, they [00:07:00] also get the best mechanics. And when the equipment stops working, they just put it right back on the rental company. So the rental company is handling for them, all the headaches of managing of that equipment.

From a bonding standpoint, I like that, because the rental cost just go in as a job cost and you don't see a lot of property and equipment that they don't get bond credit for.

It seems to me to be a more liquid way of doing business, but at the same time, I've got other customers that have older equipment that they just beat up. And they buy the best heavy duty commercial stuff money can buy, trailers too, and they just beat them into the ground.

I was talking to one of them yesterday and I said, what is your best trailer that you've got there? And he goes, man, I don't know. I know these Palmer trailers, we just beat the hell out of them. And they keep going. So, you know, there's that reputation. There's a reputation of those good solid engines that just work, [00:08:00] those workhorses.

So those contractors that manage all of their equipment and their vehicles from that perspective are also working on them, right? They're doing the maintenance and repairs, and that gives them a lot of freedom, versus the frustration of having to pin on somebody else to do something for you when you need it, and it's an emergency.

Do you remember that podcast we had about the folks that provided job site emergency repairs, and they were doing it virtually? Literally mechanics virtually that would get online and talk your mechanic through the problems they're having. It was a service. 

Wade Carpenter: Teladoc. 

Stephen Brown: Yeah. Like Teladoc. Exactly. So, I get it. And there's a certain sense of excitement that comes to buying equipment for a contractor. I get that too.

There's a certain sense of excitement to me when I'm on a job site and I see row upon row of [00:09:00] excavators, bulldozers cranes, all sorts of equipment just lined up in a row. I see it's parked, it's backed in, it's clean, it's fueled up, it's ready to go to work, and there's some excitement in that.

But then two seconds later, to me it's so much fulfilling to see an empty yard where that equipment is gone out there working. I know that's the way contractors feel. So I guess it's mixed emotions. You own your own equipment, you control your own destiny.

I wanted to get into about this problem of deductions and write-offs. Maybe we could talk about depreciation a little bit and what that truly means. Because you look at it on a financial statement, it impacts the taxes that you pay, the depreciation allowance, but what does that really mean in the analysis? Maybe we'll get into that too when we crunch the numbers in the next podcast. 

Wade Carpenter: Yeah, I mean, you hit a lot of things in that. You talked about your contractor that didn't own a lot [00:10:00] of equipment. And I still think back to 2008, 9, 10, you know, grading contractors, the heavy equipment guys. The work dries up and they were stuck with all this equipment and whether you got it running during the heavy period of time or not, but that payment on that equipment does not care if it's January, and it's sitting idle. It is nice for that Contractor to line that up and they're probably really proud of that clean equipment. But it's not earning money. That's the thing.

I saw some contractors, a few of them that survived in like the grading, the heavy equipment guys, 2010, because they didn't have a lot of debt on those equipment. The ones that did, the vast majority of those were wiped out. It took them a long time to recover. A lot of them never did recover.

But the question is, okay, my payment is cheaper if I own it, and I don't just have to-- forget about the insurance, they forget about the maintenance, they forget about, what happens when it's [00:11:00] not working on the job site.

There's a lot of things to be said about, okay, yes, cash flow wise, it can be cheaper to make that payment or a lease versus a buy. There's a lot of cash flow implications. There's tax deduction implications where okay, well we buy that truck on December 27th, the ones I talk about all the time. And even though we haven't made a down payment, but we haven't made the first payment on it, we could write the whole thing off. That's enticing. But until you see the math behind that mistake that we're gonna talk about in the next episode, that payment doesn't care if it's January and it's not sitting there doing anything. 

Stephen Brown: What about these incredible interest rates certain equipment manufacturers have at these trade shows and stuff? Our special introductory, almost unbelievable interest rates. In other words they're financing it for you.

Wade Carpenter: Yeah. I mean, well that financing for you, yeah you gotta think about what does it totally cost [00:12:00] you? And they're also the ones that are out there saying you can write this whole thing off. You got this $80,000 truck. Let's just say you're in a 35% bracket. Honestly, your tax deduction on that, that's about $28,000.

So number one, the punchline here is, tax deduction doesn't make it free. It may make it less expensive in the front end, but in the back end, does it make sense to spend a dollar to save 35 cents? That's still spending 65 cents and that's-- it is basically like a loan from the IRS. They let you take it early, but they do remember, and that's what we're gonna get into the second part of this, that the math that nobody sees and they forget about later on. 

Stephen Brown: Well, let's just take this angle. And I'm really looking forward to seeing this math. Let's just take this angle.

I couldn't stay in business if I had to rent all my equipment. I've gotta push it as long as hard as I can. That's what [00:13:00] I'm gonna do. So much power comes in the knowledge of being able to maintain and operate your own equipment. And now everybody's saying that the computers and everything else running the equipment, they can't work on it anymore. Yet I have a lot of contractors with a lot of older equipment that they can fix. They understand it.

The question is, can you get parts when you need it, as fast as you need it? And then they would say, okay, I'm not able to rent what I need. If I didn't have the equipment, I wouldn't be able to finish the job.

There's so many different thought processes going on in a contractor's mind about buying and renting, about buying and leasing. But it seems like the write off, thinking of it as a corporate business write off, it just seems more relaxing. It's like, I can justify driving $150,000 pickup truck because it's a write off for my company. That's how well my [00:14:00] company's doing, and that's how well I'm doing.

 I'm not dissing $150,000 pickup trucks. I heard the average price of a new vehicle is just cars, $50,000 a year now, average price. It just blows my mind. So at the same time, I know contractors that can totally justify and need $150,000 pickup truck. They're driving 50, 60,000 miles a year on those trucks. They're in them all the time. They need everything they can get: dependability, comfort, reliability, they've gotta have all of that.

Wade Carpenter: So going back to what you were talking about on all these different equipment decisions. Basically, there's five different real factors that this plays into. Obviously is it the cash flow? It also plays into the debt. It plays into your flexibility. Yeah. If you got that equipment you don't have to wait on, you know, make sure the rental yard's got what you need. But is it [00:15:00] reliable? What does it do to your balance sheet?

I don't know what the statistics are. You drive that new $150,000 pickup truck off the lot, and they always say you lose a bunch of depreciation the minute you drive it off the lot. Especially from your tax standpoint, you've written it off completely, but you've still got that loan that's sitting out there. That loan is something that is affecting your balance sheet, your banking, your ability to get a line of credit.

As I said before that, do you take into account like, okay, my payment is less, but I still have to make that payment in January when the thing's not moving.

So the big teaching part of this is yes-- and there's no right decision here. It's gotta be on a case by case basis. But what I want to get into in a second one is this debt spiral that a lot of contractors really get into, and they don't realize what's causing it. And we're gonna talk about that a little more, but, you know, they replace that truck every two to three [00:16:00] years, but they still have only made a couple of years worth of payments on it. A lot of them are underwater on those trucks.

2010 when all the equipment crashed, people were underwater on that stuff. They had to bring money to the table to be able to sell it.

You do have to balance that cash flow. The tax decisions should be something that you should take into account, but it should be a supporting decision. It shouldn't be one of the driving decisions on whether you know, running a healthy company. 

Does that make sense? 

Stephen Brown: That makes perfect sense. Because from a contractor standpoint, you're buying your vehicles and your equipment for work. You're buying it for work. And everything is a business expense if you buy it for work. And it's just the headaches that go with it.

Think about my questions to you about probing whether to get a new car or not. The only thing that makes it worth it, buying a new car, like you said, you drive it off the lot, it [00:17:00] loses 30% of its value when you just drive it off the lot. But what you're really buying is you're buying with a warranty. You're buying the peace of mind that comes with knowing that you're not gonna have some huge sudden expense come up and that the dealership will repair it for you.

In the contractor's world, it just doesn't work that way. You're not going into your friendly neighborhood dealership. You've got your dealership that supports your trucks, and that's important. But at the same time you're gonna beat it up, and the manufacturer knows you're gonna beat it up. You know you're gonna beat it up. And you gotta make a financial decision of new versus used. And then the purchase versus the depreciation, plus the cost, analyzing the cost to operate the vehicle and the insurance, and moving that equipment around involves hiring good drivers now, or your insurance is through the roof. There's another factor to consider. So yeah, we've got a lot to [00:18:00] unpack here, Wade. 

Wade Carpenter: Yeah. You know, the simple question, can I write this off? Going back to what you had said more about your shovel, maybe should be asking something more like, okay, does this asset make your company more profitable? Can you afford your payments if your revenue drops? How long are you gonna keep it? What happens if we sell it early? That's the hidden trap that people do not understand. 

The old saying, the hammer might make you money, but a truck payment just costs you, unless that truck helps you do some more work, right?

We've talked about a lot. And yes, there's absolutely that prestige of rolling up in that new truck, and it maybe tells your people that you're successful or at least appears as successful.

We talk about that in my book, Profit First for Commercial Construction. Are you buying that truck for you? And yeah, it does feel good, but you're saying, okay, well I'm driving up on the truck so the other subcontractors can see I'm successful. Are they the ones that really [00:19:00] matter that you're successful or not? Does that make any sense? 

Stephen Brown: No, it most certainly does. And Wade I have clients that own all their equipment and it's painted their color with their logos on it. Also the equipment is squeaky clean when it shows up on any job site. There is a huge sense of peace and comfort to someone that's paying for your services when that stuff shows up, and you show up like a military maneuver, ready to wage war on that project.

I get that end of it too, Wade. I mean, I really do. I can see that. But I think maybe this next section of the podcast as we measure this, the most important thing I've gotten so far outta this podcast is asking the right questions, really.

And your tax advisor may give you advice and they may not have asked you all the right questions that you need to have for your tax advisor to give you the right answer.

So how [00:20:00] do you want us to break this down? Just simple. Write off understanding, you know, like in this podcast, what a write off is, what it truly means versus the next podcast of seeing by the numbers, how it affects your cash flow, your bottom line?

Wade Carpenter: Yeah. Next episode, we are gonna prove it out with some numbers. I'm really looking forward to this because again, your tax advisor, I don't think has ever shown you how this comes back to boomerang on you sometimes.

We are gonna talk about things like depreciation and loan payoffs, and negative equity, stuff like that. There's something like recapture tax, which people don't realize hits them, but it's in the backend. We're trying to manage where we are and they don't realize how this affects them, so. 

Stephen Brown: Oh man. Recapture tax. That sounds bad. 

Wade Carpenter: Well. People don't understand why churning these vehicles up every single year, that's where it comes back to bite them.

We hope that you've [00:21:00] gotten something out of this episode and that you're gonna come back next time and really see some of the math that nobody shows you. I really feel confident in that because I've never actually done analysis like this that I'm gonna show you guys next time.

So, I really enjoyed kicking this around with you, Stephen because it's just something that I deal with every day. I still fight that same fight. It's like, okay, a guy knows a guy that says you can do this and that. And I'm like, okay, well I'm the bad guy because I say, well there's some partial truth to that, but it's not a hundred percent true. So you're laughing, but what do you think? 

Stephen Brown: No I love it. I'm ready to roll. Let's go to the next podcast. And Wade, thank you for tackling this and sharing with our listeners. And also I say to our listeners, you're gonna have lots of questions. Hopefully this podcast has helped y ou put in your mind the thought processes of what you're going through as you're trying to make these decisions.

And maybe we can take the emotion out of it a little bit and [00:22:00] just look at the practical aspects of it, and then you can decide. Because again, it's your company, you can do whatever you want.

When you ask for tax advice and you don't hear what you want to hear from your accountant, well, I'm sorry about that too, but it is what it is. So we'll try to make this as fun as possible. I can't wait to see how you generate this information and how we come to a conclusion.

Wade Carpenter: Okay, well thanks for kicking this around, and I know this one coming out this week. If you got some questions in there, drop them in the comments below and we'll try to answer them and maybe address them in the second episode.

I'm really looking forward to this because I've really never talked about it like this. And I think this is something you may need to hear.

So if you did get something, if you're not subscribed, go ahead and hit that subscribe button, turn that notification bell on so that you know when this next one comes out because I don't think you're gonna wanna miss this. So thanks for joining us. We do this every single week. [00:23:00] We appreciate you and we will see you on the next show.