The Most Important Tax Deductions for Landscapers
Equipment, services, employees — you should be managing all your expenses throughout the year so your tax situation is fast and easy. But life isn’t always that simple. If you’re combing through your bank statements and credit cards for deductions now, these are the deductions you should be looking for.
1. Your Travel Costs
Travel costs to and from sites can be charged based on mileage. This mileage charge is intended to include things like gas and wear-and-tear on your vehicle. As of 2021, it was 58.5 cents per mile for business use. The travel has to be business-related. Track your mileage every day to ensure that you’re getting back your mileage costs when you’re using your personal vehicle. The mileage cost per mile changes every year.
2. Insurance Costs
Landscapers need a lot of insurance. Liability insurance is a big one, as is business owner’s insurance. Make sure that all your insurance costs are booked as they are deductible. This also includes things like property insurance that you might be carrying — and insurance that you may be carrying on your home. All these things can be deductible, as far as they are being used for your business.
Utilities should also be booked for your taxes, depending on what you’re using them for. For instance, if you have a business cellphone line, you should be deducting it. If you have special internet service for your business, you should deduct it. You should deduct the percentage of utilities you’re using for your home office, as well as utilities that you’re using at your actual office or worksite.
4. Equipment Purchases
Landscapers need to purchase a lot of equipment. Luckily, this equipment is deductible. You can deduct the cost of consumable supplies as well as the depreciation of equipment purchases. You may be able to use simple depreciation to deduct the entire cost of an asset purchase. But usually, you’ll calculate depreciation using a formula such as ‘straight-line depreciation’, which is intended to estimate how much value an asset still has.
A landscaping company has to do marketing and advertising to be successful. Most landscaping companies are going to do things like send out flyers, hand out business cards, or print posters; that’s all marketing and advertising. If you have a website or a social media account, any associated costs will also be marketing and advertising. Marketing and advertising is often a substantial expense for a small business and it should all be counted.
6. Equipment Rentals
In addition to equipment purchases, equipment rentals are also a tax deduction. This is a direct expense to a business, if it isn’t otherwise reimbursed, rather than being an asset purchase; the entire amount can be deducted. Occasionally, landscapers may need to rent equipment (such as a riding mower) because they don’t have enough equipment to bring to a site or because they need more equipment to handle the number of jobs they have.
7. Home Office Expenses
Many landscapers work out of their homes or garage. Your home office expenses can therefore be deducted, which includes not only mortgages and mortgage interest, but also things like utilities — particularly internet access and electricity. Generally, you’ll calculate this based on the percentage of your house being used as a home office. Your home office deductions are important because it can help you reduce the overall financial burden of your home property.
8. Professional Services
Any professional services that you need, such as an accountant, can be tax deducted. A landscaper may need an accountant, an attorney, and other professionals to help them keep their business financially and legally supported. These professional services are expenses. Keep a record of expenses that you have, including courier services, and retainers that you pay to professionals like business attorneys.
9. Self-Employment Taxes
If you’re an owner-operator, you need to pay self-employment taxes. Generally, the self-employed pay more in taxes because they need to pay both their employee share and employer share of taxes. But your self-employment taxes are also an expense, so don’t forget to log them as an expense to offset your income. In addition to your taxes themselves, you can also deduct any amount that you spent getting your taxes prepared.
10. Contractors and Employees
Don’t forget to send out those 1099s. Contractors and employees are, of course, deductible expenses; any wages that you pay out are going to be considered above-the-line expenses for tax purposes. They’re the cost of doing business. But also consider that contractors and employees are very different. You need to send out 1099s and W2s to all your contractors and employees, but with 1099 contractors you don’t have a tax burden; with W2 employees, you should make sure you’ve paid all the federal and state taxes and unemployment insurance.
11. Retirement Accounts
Don’t forget that if you’re self-employed, you can invest in a SEP IRA rather than a traditional IRA. A SEP IRA lets you put away pre-tax dollars but much more than a traditional IRA. In 2021 the cap for a SEP IRA was either $58,000 or 25 percent of your compensation. A SEP IRA can help you squirrel away a lot of money in pre-tax dollars which you can then use for your future retirement. Traditional IRAs, 401ks, and other tax-advantaged accounts can also be used for a deduction.
12. Meals and Entertainment
It’s fairly rare for landscapers to take clients or potential business partners out, but it does happen. Meals and entertainment are 100% deductible through 2021 and 2022, as an initiative to help the restaurant industry. So, you can deduct the entire cost of meals and entertainment, provided that it’s truly a cost of doing business (the meeting is because of business, not a social occasion). This also includes meals and entertainment for workers; lunches and dinners provided for workers, for instance.
13. Office Expenses
As a landscaper, you may or may not have a brick-and-mortar shop. But if you do have a brick-and-mortar shop, that’s a common tax deduction. Your taxes will be reduced by the amount that you’re paying for rent and utilities in your dedicated office space.
A landscaper is a small business owner. So most small business taxes apply. Small businesses can deduct all the expenses that are directly related to their business, such as purchases of equipment, utilities, and rental costs. Ideally, you should only be taxed on the actual profit you made, rather than the expenses that were necessary to run the business.
The biggest issue landscapers often fall into is that they may not be properly distinguishing their personal funds from their business funds. You need to make sure you have a business account rather than putting all your money in a personal account. Not only does this make your bookkeeping a lot easier, but it also reduces your financial liability in the event that an issue occurs with your landscaping company.
Tracking Your Tax Deductions
For those who are frequently “out of the office” like landscapers, the problem is less knowing what deductions to take and more tracking deductions. There are a few ways you can make tracking your deductions easier:
• Save your receipts online. You can scan your receipts digitally as you receive them, through your smartphone, so you don’t have just a pile of receipts at the end of the year.
• Don’t do anything in cash. While it can be appealing because it’s easy, it’s better to have a digital transaction trail. Deposit all your cash and use your bank card for all transactions.
• Reconcile your accounts. Every month, reconcile your bank accounts and credit card accounts to make sure you’re not missing any transactions. It’ll make it less difficult to account for everything at the end of the year.
• Plan your taxes ahead. Now that you know what types of things are deductions, you can let that influence your tax decisions moving forward. For instance, a home office is a great dedication; why not set up a home office if you don’t already have one?
Those are the most important tax deductions for landscapers. But they’re not all the deductions that you might have. Every landscaping business is unique, whether you specialize in upscale luxury residences or commercial offices. The best way to determine what your tax deductions are is to connect with a professional.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.