Here are simple ways to reduce your tax burden as a vendor
Key takeaways:
- Working with a property management firm can help small businesses increase their income
- This move could also lead to higher income tax
- Following some simple tax tips can help reduce taxes owed
- Finding property management firms to work with has never been easier
As a small business or contractor, working directly with a property management firm could help expand your company. Depending on the property manager’s needs, you could end up with regular work at a set location for the foreseeable future.
This extra income is great for you, your business, and your family. However, it will probably make your taxes more complex, and you could end up owing more come tax time.
Since you don’t have an employer to deduct your taxes automatically, this additional taxation could become an issue.
The good news is that there are ways to reduce your tax burden legally. Tax deductions are expenses you can subtract from your taxable income, lowering the amount you owe.
Here’s a look at six tax tips small businesses can utilize as they attract new clients and grow.
1. Remember your vehicle expenses
You can deduct vehicle expenses when you use your vehicle for business purposes. These deductions can add up if the community you’ll be working in is a significant distance from your home or office.
There are two ways to deduct vehicle expenses. You can choose the right one for you depending on which provides the most tax advantages.
The first way is a standard mileage rate, which allows you to deduct $0.585 for every mile you drive as of 2022.
The second way is the “actual expense method,” in which you’ll track all of the costs associated with your vehicle over the entire year including gas, oil, repairs, tires, insurance, registration fees, and lease payments, and multiply that number by the percentage of miles you drive for business purposes.
You’ll have to track your business miles per year for both methods.
There’s a good chance your business mileage will add up significantly when spending more time on the road, so it’s well worth tracking when working with a property management firm.
2. Deduct bank fees
If you haven’t done so already, it’s a good idea to open a separate bank account for your business. Taking this action could help you at tax time because it allows you to make additional deductions.
For example, if your bank charges you service, transfer, or overdraft fees on your business account, you can use those amounts as tax deductions. Merchant fees for services like PayPal or Stripe are also deductible.
You can’t make these deductions for fees on your personal accounts, so it makes sense to open a specific business account if you’re collecting payments.
Opening a business account also makes it easier to track other business expenses you can deduct from your taxes.
3. Business equipment depreciation
You may end up using any business equipment you own more often when working with a property management firm, especially if they retain you for regular service. Although this additional work could cause your tools to wear down more rapidly, there are tax deductions associated with equipment depreciation.
Company property eligible for depreciation-related tax deductions includes vehicles, furniture, and equipment. So, if a property management firm hires you to cut the grass throughout a particular community, you can expect your lawn care equipment to depreciate over that year.
The formula for determining how much you can deduct for this equipment involves taking the equipment’s original value and then multiplying it by its percentage of business use.
These deductions are available in a lump sum, so you can deduct the entire value of a particular piece of equipment at one time.
4. Insurance deductions
Expanding your business could force you to upgrade your insurance, but, fortunately, there are deductions available if you do so. In short, the premiums you pay for business insurance are deductible on your taxes.
Insurance coverage you might opt for as you expand includes liability, workers’ compensation, auto, and business interruption since your busier company will have a lot more going on and additional assets to protect. You might also hire more employees, increasing potential liability on the job site.
Protecting yourself and your company is critical, but it’s nice to know that there are tax benefits when purchasing additional insurance.
5. Deductions for contract labor
As you expand your employee base, you should know that there are special deductions when you hire contract laborers. When choosing to hire independent contractors to assist with the jobs you complete around the community, you can deduct the fees you pay them as a business expense.
Keep in mind that the contractors will have to fill out a Form 1099-NEC before January 31 of the following year if you pay them more than $600 for their labor.
This option could be beneficial if you don’t require additional full-time help to keep up with demand.
6. Change your business structure
A final tax tip you might consider is changing your business structure as you expand. Small business owners are on the hook for their entire tax bill plus their personal Social Security and Medicare contributions.
However, by filing as a limited liability company (LLC), there’s a chance you can eliminate the employer’s half of those tax responsibilities. You’ll then have to pay yourself a reasonable salary but can reduce your personal tax burden in the process if you’re strategic about this switch.
How to find property management clients
Small businesses offering services for property management firms might be wondering how to find these clients. Locating a property management company looking for your services could provide your business with plenty of work for years to come, helping you expand.
VendorSmart can help contractors and small businesses get in touch with property management clients when looking to expand their business. Our easy online platform connects vendors with property managers while offering compliance vetting and a job board. The result is more opportunity and less risk for all involved.
Contact VendorSmart today to learn more about our vendor management platform.