When contractors think about what they earn, they think about their invoice total. What most underestimate is what comes out the other side — insurance, vehicle, tools, taxes, software, accounting, and a dozen other costs that quietly erode their margin. This is a realistic breakdown of what it actually costs to run a contracting business, and what you really take home.
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If you invoice $120,000 in a year and think you earned $120,000, you're likely off by $30,000–50,000. Running a contracting business has significant fixed and variable costs that most contractors don't fully account for — and that's before materials and labor on individual jobs.
The costs below are for a solo or small-team contractor in the US in 2026. Numbers will vary by trade, location, and business size, but the categories are universal.
Understanding these costs has two practical uses: 1. It tells you what your real take-home is and whether your rates are adequate 2. It shows you exactly what goes into your overhead calculation — which should be built into every job you price
Insurance is one of the biggest fixed costs for contractors, and also one of the most non-negotiable.
General liability: $800–2,500/year. Covers third-party injury and property damage during your work. Most clients require a certificate. The higher your revenue and the higher-risk your trade (roofing, electrical), the higher the premium.
Tools and equipment: $400–1,200/year. Your tools are your business. Theft, loss, or accidental damage without coverage means paying out of pocket to replace everything. Non-negotiable for anyone with significant tool investment.
Vehicle (commercial use): $1,200–3,000/year. Personal vehicle policies typically exclude commercial use. If you use your van for work, you need commercial vehicle coverage. Higher for higher-mileage operations.
Workers' compensation: Required if you have employees. Typically $1,000–5,000/year depending on trade and payroll.
Total insurance: Budget $3,000–8,000/year depending on your trade and coverage levels. This is overhead — it comes before you invoice a single job.
Your vehicle is your second-largest recurring cost after labor — and often your largest depreciating asset.
Vehicle payment or depreciation: If you're paying $600/month on a van, that's $7,200/year before you turn a wheel. Even if you own your vehicle outright, it's depreciating — a $35,000 van depreciates roughly $4,000–6,000/year.
Fuel: At $3.80/gallon and 25,000 miles/year at 18mpg, that's ~$5,300/year in fuel.
Maintenance and servicing: Budget $1,500–3,000/year for tyres, oil changes, servicing, and minor repairs. Vans with high annual mileage or older vehicles will be at the higher end.
Registration and licensing: $200–600/year depending on state.
Total vehicle cost: A realistic annual vehicle cost for a solo contractor doing 25,000 miles/year is $10,000–18,000, including payment, fuel, insurance, and maintenance.
Your annual tool spend depends on your trade and how well-equipped you already are. A new contractor will spend significantly more in year one.
Ongoing tool costs include: - Replacement of worn or damaged tools - New tools for new service types - Battery and blade replacement (for power tools) - Safety equipment (PPE, harnesses, lenses) - Small equipment purchases
Budget conservatively: even a well-equipped contractor will spend $1,000–2,500/year on tools and replacement parts. Tradespeople in higher-wear trades (concrete, demolition, roofing) or who expand their service range regularly will spend more.
Running a modern contracting business requires software. The main categories:
Business management (quotes, invoicing, jobs): $0–600/year depending on the tool. TaskArc Pro is $228/year — one of the most affordable options in the market.
Accounting software: QuickBooks Self-Employed ($180/year), FreshBooks ($228+/year), or Wave (free). If your accountant handles bookkeeping, this may be included in their fee.
Google Business, website hosting, domain: $100–400/year for basic web presence.
Phone plan: Your business portion of your phone bill. If your phone is 70% business use, 70% of your monthly plan is a business expense. Budget $600–1,200/year.
Total software and technology: $500–2,000/year for a typical solo contractor.
Tax preparation alone by a qualified accountant costs $400–1,000/year for a self-employed contractor. If you have an LLC or S-Corp, add business entity filing costs.
Many contractors also pay for: - Quarterly bookkeeping review: $200–600/year - Legal advice on contracts or disputes: Variable - Business licensing and permits: $100–500/year depending on trade and state
Budget $500–2,000/year for accounting and professional services. The cost of not having a good accountant — in missed deductions and tax penalties — almost always exceeds the cost of hiring one.
Marketing costs vary enormously depending on how you acquire clients:
Organic (free) channels: Google Business Profile, social media, referrals, and community groups are free but require time investment.
Paid digital advertising: Many contractors spend $500–2,500/year on Google Local Services Ads, Google Ads, or Facebook/Instagram ads to supplement organic growth.
Paid directories: HomeAdvisor, Angi, Thumbtack, and Houzz charge for leads or subscriptions. Budget $500–2,000/year if you use these.
Physical marketing: Business cards, vehicle signage (a vinyl wrap is $500–2,000 and generates leads for years), branded workwear.
Total marketing: Budget at minimum $500/year for basic physical marketing and directory listings. If running paid advertising, $2,000–5,000/year is typical for a contractor actively investing in growth.
Here's a realistic picture for a solo contractor billing $120,000/year:
Gross revenue: $120,000 Materials (average 25% of revenue): –$30,000 Insurance: –$5,000 Vehicle total: –$14,000 Tools and equipment: –$2,000 Software and technology: –$1,000 Accounting: –$1,500 Marketing: –$2,000 Self-employment tax (15.3%): –$11,700 (on net earnings) Federal income tax (22% bracket, after deductions): –$8,800
Estimated net take-home: ~$44,000–50,000
That same $120,000 in billings nets roughly $44,000–50,000 after all real costs — not $120,000 minus a rough guess. For some contractors, this is a wake-up call that their rates need to increase. For others, it confirms they're pricing correctly. Either way, knowing the number is the starting point for making good business decisions.
Want to check your own numbers? Use TaskArc's free pricing calculator at /tools/pricing-calculator.
The contractors who build financially stable businesses are the ones who know their real costs — not just what they invoice, but what they actually keep. Build every cost category above into your overhead, price it into every job, and review it annually. Costs go up every year. Your rates need to keep pace.
The largest ongoing costs are typically vehicle (payment, fuel, insurance, maintenance), business insurance, materials on jobs, and taxes. For a solo contractor billing $120,000, expect $70,000+ in combined costs before you calculate your take-home.
A contractor billing $120,000/year in a project-based trade typically takes home $40,000–55,000 after materials, vehicle, insurance, taxes, and other operating costs. The exact figure depends heavily on trade, overhead control, and tax planning.
Add up all your annual fixed business costs (insurance, vehicle, software, accounting, marketing, etc.) that aren't directly tied to specific jobs. Divide by your billable days per year. That's your daily overhead rate — add it to every job you quote.
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