Even though your business’s taxes aren’t due until the spring, it’s always a good idea to be proactive in your tax planning to maximize deductions and prepare for next year.
“A lot of people think about, ‘Hey, what can I do to reduce my taxes this year?’ and a lot of that tax reduction sometimes pushes income into the following year,” says Eldar Causevic, founder of Denali CFO Services. “If next year is going to be better than this year, and you don’t expect a tax rate reduction, you’ll just end up making next year worse. So is it really a wise strategy to push the taxable income to the following year? If we’re doing projections correctly and we think that next year will be softer, then, yeah, it makes a ton of sense.”
Causevic says it’s short-sighted to think about only the current year and landscape companies need to think about the long term.
“The objective is not just to minimize the tax,” Causevic says. “The objective is to minimize the percentage of income that you pay in tax.”
Maximizing Your Deductions
The tax deductions you can take advantage of will vary based on your business structure, growth stage and what state you operate in.
One of the most common forms of tax deduction is through accelerated depreciation. Section 179 is one form of accelerated depreciation, where you can deduct the full cost of eligible equipment in the year of purchase.
“Generally, there is no dollar limit per asset as long as the asset is an off-road piece of equipment,” says Andrew Trower, CPA and founder of Andrew Trower, M.B.A., C.P.A. “Vehicles must have a gross vehicle weight (GVW) of 6,000 lbs. or more and have a 6-foot cargo area (truck beds count) in order to be fully deductible.”
Bonus depreciation is another form of accelerated depreciation. It lets you immediately deduct 100% of asset costs, even after utilizing Section 179, but it’s important to evaluate if deferring deductions over time might be more beneficial.
“Both strategies are powerful, but improper use can lead to costly tax recaptures or large deductions in low tax bracket year,” says Peter Thelen Sr., CPA and founder of Thelen Financial. “Work closely with a tax professional to optimize deductions based on your business’s current and expected tax situations.”
Trower adds that bonus depreciation will be eliminated in 2027.
“For 2024, the bonus depreciation deduction is 60% of the cost of eligible assets, 40% in 2025, and 20% in 2026,” Trower says. “For bonus depreciation purposes, eligible assets include a broader range of assets: tangible property with a depreciation life of 20 years or less (vehicles, equipment, and other assets), qualified improvements, and many more. Bonus depreciation cannot be carried over, but it can create a loss for the taxpayer.”
Trower notes that Section 179 has more flexibility than bonus depreciation, as businesses can elect a specific amount for each asset.
Other ways to reduce your taxable income is through charitable contributions, maxing out your contributions to 401(k) or SEP plans, and awarding employee bonuses. Thelen says that not only does offering a 401(k) plan help reduce payroll and income taxes but it also differentiates your company in a competitive job market. Health insurance and health savings accounts (HSAs) are also deductible.
“If you offer high-deductible health plans (HDHPs), HSAs can provide tax savings for both the company and employees,” Thelen says. “Employer contributions to HSAs are tax-deductible, and employees can make pre-tax contributions, reducing payroll tax liabilities. By implementing these strategies, landscape companies can reduce their tax burden while offering valuable benefits that attract and retain talent.”
Lesser-Known Tax Breaks
Causevic says ideally landscape companies should work with a CPA who understands the industry and what credits are available, but they also should be doing their homework on possible tax breaks available locally.
Some of the overlooked tax breaks to explore include off-road fuel tax credits, state retraining tax credits, and hiring incentives. Off-road fuel tax credits provide landscape companies credit for road taxes paid on fuel to run equipment like mowers.
“Many states allow a substantial rebate for fuel used by off-road equipment and vehicles,” Trower says. “This requires developing a reasonable method of tracking on-road versus off-road use of fuel across the company.”
Also, don’t forget to research local and regional incentives in your area for growing and training your team.
“Many states and municipalities, for example, will have credits or programs that help offset some of the costs of these programs,” Causevic says. “Every state is interested in getting more qualified individuals and growing the quality of the workforce, both field and the leadership team.”
Thelen adds that some states provide tax credits for hiring under specific initiatives, such as veterans or individuals from certain targeted groups.
Training and educational expenses that upskill your workforce can also be tax-deductible.
“This includes seminars, certifications, and continuing education programs that enhance your employees’ skills,” Thelen says. “Investing in your workforce’s training not only qualifies for tax deductions but also improves productivity and retention.”
Causevic says another tax credit landscape company owners may be less familiar with is R&D tax credits.
“Basically, if you’re innovating in your business, and innovation doesn’t have to mean you’re developing a new product,” Causevic says. “If you’re developing new techniques. If you’re trying new approaches to landscaping. If you’re trying all electric. If you’re trying new software and developing new processes, these are all innovations in your business that sometimes can qualify for a tax credit.”
If you’re on the smaller side, don’t overlook home office deductions and vehicle expenses. Trower says that if a landscape professional has a portion of their home they use solely for business purposes, they can deduct a portion of that amount using actual expenses or a simplified method on square footage.
Similarly, for vehicle expenses, landscapers can either deduct the actual expenses for each vehicle by keeping receipts and tracking depreciation or they can utilize a simplified method.
“The simplified method is used mainly by smaller companies and allows a business owner to apply a uniform rate per mile,” Trower says. “Both methods require keeping a mileage log for each vehicle.”
