Trying to calculate your tax burden at the end of the year can be daunting. It can get worse when you fail to budget in your quarterly estimated tax payments. There are so many intricacies in the tax code, it can make you want to pull your hair out. Here are a few tips, from the Gopher Lawn Care Business Forum, to help minimize your tax burden at the end of the year.
One lawn care business owner wrote “can someone give me some insight on the tax issues of starting your own lawn care business?
I am trying to figure out if the purchase of my lawn tractor should listed as a business expense, or part of the capital costs of starting my business.”
A second business owner shared “keep in mind I am not an accountant and tax laws change all the time so you would be best advised to speak to a tax preparer or an accountant. In my opinion however, it is considered an asset. The IRS defines an asset as one that lasts more than one year and the cost is not minor.
But there is a legit way around the asset business expense fiasco. Section 179 lets you deduct up to $125,000 worth of assets as business expenses through section 179. You still have to keep your books in proper order.
A lot of people over look this or don’t know how to do it. Until you buy over $125,000 worth of equipment in one year, you can deduct the whole thing in section 179.
Once you do this, your assets are not assets any longer and you can’t depreciate it in future years.
There is an exception to the rule, it’s your car or truck. Those items have to be depreciated as assets. There’s a million other things that go along with these deductions so you should either get a good book keeper, or start learning.
A lot of people use accounting software and think they’re keeping proper books but they miss out on so many deductions it crazy. I hear many people say ‘if you take too many deductions it sets you up for an audit’ well my view is who cares as long as it is all legit and documented!
I read in a book once that the one of the things that separates the rich from the poor and middle class is the rich take advantage of every legit deduction possible.
Here are some of the deductions I take:
- A home office deduction can be a huge deduction.
- I deduct 25% of my utilities, (none of my primary phone) but for things like garbage, internet, and rent.
- Another is vehicle maintenance, and fuel. Remember to track your mileage! Anytime you use your personal vehicle for business use that’s also tax deductible.
- You can deduct a part of your taxes from self employment which takes the tax amount down to about 8% from 15%.
- Advertising is also sometimes over-looked.
I find a lot of people seem to over look a lot of things. I save all receipts from anything that is normal and necessary to my regular business and deduct it all.”
A third lawn care business owner wrote “if you buy a mower that costs $5,000 and you plan on it lasting 5 years, then you can deduct $1,000 each year as depreciation. Any repairs made to the equipment become business expenses for the year.
The other option is to take it as a 179 deduction. If you do this then you can use the whole $5,000 as a deduction that year but you won’t be able to use those deductions the following years.
The problem with taking the whole deduction the first year is that the following years your net income is going to be much higher because you won’t have those deductions and you will have to pay the higher taxes then.
I suggest you try to find a balance. If you plan on having a lot more income the following years, perhaps don’t take the 179 deduction and just depreciate the machines normally.
Another tax to take into consideration as you are trying to create your budget for the year is self employment tax. Which is about 15% of your net income. If you have employees, there’s also unemployment and workers comp.”
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