CHICAGO — The owners and operators of most self-service laundries rely on the tax-saving abilities of professionals or software programs. Substantial tax savings are, however, largely the result of moves undertaken before the close of the tax year.
There’s still time for the vended laundry operator to ensure enough hours have been worked to constitute “material participation” in the business. Material participation is necessary for avoiding the label of “passive investor” and limited personal deductions.
It’s also not too late to qualify for the significant benefits of the soon-to-expire Work Opportunity Credit for hiring from specific groups of potential workers. Now might also be a good time to make any large equipment purchases for a write-off under the revamped bonus depreciation.
(Editor’s note: This article is for educational and reference purposes only. It’s not intended to provide specific advice or individual recommendations. Consult your attorney or tax adviser for advice about your particular situation.)
NEWLY CREATED OPPORTUNITIES
A major factor in tax planning is, of course, the One Big Beautiful Bill Act (OBBBA).
Most self-service laundry businesses can now benefit from the permanently restored 100% bonus depreciation for all qualified property acquired and placed in service after January 19, 2025.
Pair this with larger Section 179, first-year expensing deductions — now $2.5 million with a $4 million investment ceiling (inflation-indexed after 2025) — and every self-service laundry operator has a powerful capital-spending window. And, don’t forget the Qualified Business Income (QBI) deduction that’s also permanent.
OBBBA made permanent the 20% deduction from the income of small businesses, including sole proprietorships, partnerships and S corporations, allowing them to deduct up to 20% of their qualified business income (plus 20% of qualified real estate investment trust [REIT] dividends and qualified publicly traded partnership [PTP] income).
It also created a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income to ensure eligible small-business owners can access an enhanced baseline deduction.
PLANNING IN ADDITION TO OBBBA
While the OBBBA will have a significant impact on planning, there are other, established strategies that shouldn’t be ignored.
OBBBA-enhanced tax credits, such as the employer credit for paid family and medical leave and the employer-provided child care tax credits, have both been enhanced and made permanent. And, unlike deductions, tax credits can reduce the annual tax bill — if thought is given to them now.
The Small Business Health Care Tax Credit, for example, can help small employers such as vended laundry businesses cover the cost of providing health insurance to their employees.
This credit is worth up to 50% of the premiums paid by any vended laundry with fewer than 25 full-time employees whose average wages are below $66,600.
Offering employees a qualified health plan obtained through a Small Business Health Option Program (SHOP) marketplace now and using IRS Form 8941, Credit for Small Employer Health Insurance Premium, when filing the operation’s tax returns will start the two-year tax credit period.
Best of all, if the vended laundry business doesn’t owe tax during the year, it can carry the credit back or forward to other tax years. And, since the amount of the health insurance premium payment is more than the total tax credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit.
TAX PLANNING 101
A good first step for planning to reduce the annual tax bill is reviewing the operation’s finances. Year-to-date performance and a projection of the final tax bill can help determine how best to maximize deductions and credits.
Reviewing the operation’s cash flow will help plan any required end-of-year tax-related decisions, such as accelerating deductible expenses. If, for example, higher earnings are expected next year, prepaying deductible expenses before the end of the year might be advisable.
If new equipment, software or other business property is needed, acquiring — and placing it in service — before December 31, 2025, could entitle the operation to a full first-year deduction.
Boosting retirement contributions to plans such as a Simplified Employee Pension (SEP) IRA or a solo 401(k) is a good strategy for reducing taxable income. On a similar note, documenting and writing off any bad debts that have become worthless during the year can also be an effective tax reducer.
ACCOUNTING FOR IT ALL
Many small businesses use the cash method of accounting on their books and tax returns. Under the cash method, the self-service laundry recognizes income when it’s received and expenses when they are paid -— in other words, when cash actually changes hands. That creates some interesting tax-planning strategies.
If lower taxes are expected in the future, an operator might want to defer personal or business income to next year, when the tax bills might be lower. On the other hand, it might make more sense for an operation to accelerate income into this year — especially if you think tax rates will increase in the near future.
Actions such as prepaid loyalty cards or sending invoices to commercial customers seeking payment this year by offering discounts or special offers is advisable in a low-income year. The same concept works with expenses. However, if the vended laundry operation expects a big tax bill this year, accelerating expenses can reduce taxable income.
Coming in Wednesday’s conclusion: Disappearing credits; records for planning; and going paperless
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
