As your business shifts into the slow season or the snow season, depending on where you’re based, you might just now finally have time to think about preparing your books for tax season.
While it can be tempting to put these matters off until your busy season is over, maintaining your books on a daily basis can make taxes less of a hassle.
“Accuracy is something that needs to happen daily, not at the end of the year in a mad scramble to file taxes,” says Liz Helton, vice president of McFarlin Stanford.
Helton encourages establishing financial processes for closing the books monthly so when December is closed, the entire year is essentially wrapped up.
Common Pitfalls
Brian Post, CPA and partner at Turf Books, agrees that not having up-to-date financial statements when it comes to sitting with their accountant is the most common pitfall for landscape professionals. Not having accurate financials creates delays and increases tax prep costs. Missing equipment or other fixed asset purchases on balance sheets can lead to missed deductions. Post suggests having solid record-retention procedures.
“Implementing month-end closing procedures such as bank/credit card reconciliations, routing software (revenue) entries, and a monthly review of financial statements will ensure that all deductions and revenue are accurate,” Post says.
Jim Westover, president of LandOpt, says tax preparation starts with the very first business receipt of the new year.
“Remaining disciplined and committed to your accounting process will make filing taxes easier,” Westover says. “Some of the larger corporations may even work towards making quarterly payments to avoid large tax bills later in the year. At worst case a landscape company should have their documentation and a plan heading into the fall season. This allows them to begin the prep work necessary for tax season in April.”
Making sure your books are tied up monthly helps avoid costly mistakes and gives you a better depiction of the health of your business. Post adds landscape business owners should not mix personal and business expenses.
“Not only will this help them in the event of an audit, but it will provide a clear picture into how their business is operating,” Post says.
Another common mistake when it comes to tax prep is not having the proper documentation for deductions and depreciation on assets. Westover says this can be as simple as saving receipts from meals and entertainment associated with education like NALP events and tracking when you’ve sold off assets.
Take Advantage of Tax Credits and Deductions
Tax credits and deductions both decrease what you’ll pay in taxes so it’s important to do your due diligence and not miss out on these opportunities. Tax deductions lower your taxable income, which can reduce what you’ll pay in taxes.
“The most common deduction we see in our industry is the Section 179 Tax Deduction,” Westover says. “This deduction allows a company to write off the full purchase price of qualifying new and used equipment purchased during the year. Section 179 allows for deductions up to $1,080,000 in 2022 for qualified equipment. We see a lot of this towards the year-end when companies are trying to lessen their tax burden.”
Tax credits can reduce your tax bill and possibly increase your refund. Post says there are countless credits that can be used by landscape professionals and they often go unused. One common credit that can be taken advantage of is the Credit for Federal Tax Paid on Fuels, which applies to fuel that is used in off-road equipment such as mowers, ride-on spreaders, excavators, etc. This credit is $.183/gallon for gasoline and $.243 for diesel in 2022.
“Another credit that landscape companies can take is the Work Opportunity Credit,” Post says. “This credit provides an employer with incentives to hire veterans, hire within federal empowerment zones, and ultimately underserved populations. The maximum credit that can be taken is $9,600 for veterans and $2,400 for others. Other credits that are common and can be taken advantage of as a landscape company are the Employer Credit for Paid Family and Medical Leave and the Credit for Small Employer Pension Plan Startup Costs.”
Partner with a Professional
Just like how your clients trust you as the expert when it comes to working on their property, acknowledge when something is outside of your specialty, such as filing taxes.
All three recommend working with a professional when it comes to tax preparation.
“Tax professionals such as Enrolled Agents or Certified Public Accountants are required to stay up to date with all tax law changes that will benefit their clients,” Post says.
Westover adds that the cost of a CPA can easily be offset with the tax breaks and knowledge they can provide to your business.
“There are many firms out there who specialize in this area and are more current on the available deductions and opportunities for your company,” Westover says. “Having a tax plan and bookkeeping done by a CPA allows you to understand your financial health and make adjustments to your business if needed.”
This article was published in the Nov/Dec issue of the magazine. To read more stories from The Edge magazine, click here to subscribe to the digital edition.
