PEMBROKE, Mass. — Tax time is here again. You know the drill. You gather up all your paperwork, ledgers, computer reports, and the like, and drop them off at your accountant. A few weeks later, he calls, telling you to make checks out for so much in federal taxes and so much in state taxes. You’re finished for another year.
How about trying a different approach this year? Become proactive about your taxes; don’t just let the accountant do them. Try to learn from the process. In fact, suggest possible deductions. Your accountant might be a longtime family friend who has stuck by you through thick and thin, but no one cares as much as you do.
Here are a few suggestions for tax time:
File your taxes in a timely fashion. Be honest and above board. Call all inflows revenue and all expenses outflows. To do this accurately means keeping up with paperwork and maintaining the company books in a systematic fashion.
Get the payroll taxes filed, keep up with quarterlies, and turn in your personal tax return by April 15.
Pay estimates in a timely fashion. Estimates are due on April 15, June 15, Sept. 15 and Jan. 15. Estimate your annual tax liability, and pay estimates in four equal sums, both federal and state. If you don’t pay estimates on time to cover your annual profits, you will be assessed a penalty.
But the penalty is only the beginning of your problems. With this tendency to be late, you’ll probably struggle to comply with your obligation. For instance, the end of the year is coming, and you’re in a tough cash-flow squeeze, so you don’t put in the last estimates. This begins a vicious cycle of always trying to catch up. Don’t fall into that bottomless hole.
Include all mileage driven in connection with work. That includes visits to other Laundromats, trips to vendors, explorations of other markets, and even rental car costs in distant places if it is used to parse the Laundromat situation there.
Volunteer miles driven become business miles. For instance, say you conduct a free cleaning for a charity drive. All related activities are fully deductible. Pickups and drop-offs count as business miles instead of volunteer miles, because the activity helps your company’s image.
Professional subscriptions and association dues are legitimate deductions. For example, if you take several fellow association members out to dinner and you discuss your companies, you could take that expense. If you host an association party, all related costs are deductible.
Expense books purchased that help with work. For example, if you buy business or psychology books to understand employees, these are legit expenses.
Count the cost of any experiment to improve or try new processes. This might include cost of chemicals and equipment for testing out new cleaning agents.
Deduct total expenses of conventions and workshops. All charges related to your attendance at an event—flight, hotel, car rental, meals—are included. If your wife attends, her individual expenses cannot be included. But the charges common to both of you, such as lodging, can be.
If you use the Internet for research, take a portion of the monthly fee.
The costs of all education programs and workshops are real expenses.
Any payment made to your young children for working in your laundry is a deduction. Now you can employ your young children and expense their incomes. While it’s a deduction for you, they will probably not pay any taxes because their incomes fall under $3,700, the individual exemption amount.
The cost of gifts given to individuals who helped you with your business is a marketing expense. For instance, if someone gave you a lead, and it results in a new client, any giving to that individual is a valid deduction.
If you buy art and rotate it periodically in the laundry, you are entitled to expense the purchase.
If you have a space where you do administrative work regularly and exclusively at home, you can take a home office deduction. You can deduct a portion of your mortgage interest, property taxes, house insurance, maintenance, repairs, and depreciation. The portion is that square foot percentage that you use for the office plus any space you store material versus the total square footage of your home.
By regular and exclusive, you don’t have to do the work there all the time, but when you do the activity, you do it there, and you don’t do anything else there. In other words, that space is set aside for you to work at home. You might have an office in your store, but that doesn’t negate the possibility of taking a home office expense.
Many “Laundromateurs” stay clear of home offices. They don’t like the sound of the phrase, perhaps harkening back to the days when a home office would send up a red flag. But those days are long gone. With more and more people working from home, the practice has become an accepted part of the business landscape. Additionally, a home office is often a significant expense, particularly if the business owner has a sizeable house and a large mortgage. A home office could easily become a $2,000 or $3,000 deduction.
Use the time with your accountant to learn something. Examine your tax return and come back with questions before filing. Some changes might benefit you.
- Why do we have so much depreciation?
- What do the figures represent?
- What is special depreciation?
- Why did my cost of utilities go from 23% to 26%?
- Is my wash, dry and fold business profitable?
- Am I paying out too much to settle customer complaints?
- Which machines need replacing?
- Were my marketing efforts effective?
- If I made X profits, where is it?
- How could I make more money next year?
Make your accountant a business partner. After all, he or she is involved in many ventures as an accountant, and might be an investor or business owner. He or she could give you good advice, much like a consultant can.
Make the next tax season really count for you.