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As a self-employed janitorial business owner, you know that making money is crucial to your success. But equally important is keeping the money you’ve earned. That’s where savvy tax strategies come into play.
Tax strategies go beyond merely claiming deductions; they involve understanding the intricacies of tax laws and leveraging them to your advantage.
To help you keep more of your hard-earned money after tax day, we’ve compiled a list of the top 9 tax strategies specifically designed for self-employed janitorial business owners like you.
Strategy #1: Claim the ERC tax credit for your janitorial business
We mention the Employee Retention Credit (ERC) first because janitorial businesses were one of the most impacted by the COVID-19 pandemic.
Additionally, the tax credit could be worth more than all your deductions combined.
A small business of just five employees could claim more than $200,000, even if you didn’t pay that much in taxes.
The credit was designed to help businesses stay afloat while keeping employees on payroll during the pandemic. Businesses can still claim the credit until around April 2025 by amending 2020 and 2021 tax returns.
To be eligible for the ERC, your business operations have been fully or partially suspended due to a government order related to COVID-19 or you’ve witnessed a considerable plunge in gross receipts in 2020 or 2021 compared with the same quarter in 2019.
Strategy #1: Claim all your janitorial business tax deductions
Here are the top deductions for self-employed janitorial businesses to help you keep more money in your pocket.
Vehicle Expenses: As a janitorial business owner, you’ll likely spend a considerable amount of time driving to different locations. You can deduct your mileage or actual vehicle expenses (gas, maintenance, insurance) related to your business. Keep detailed records to support your deductions.
Cleaning Supplies and Equipment: Deduct the cost of cleaning supplies, equipment, and machinery used in your business. This includes items like vacuums, mops, brooms, cleaning solutions, and even uniforms.
Home Office: If you run your business from home, you may qualify for the home office deduction. You can deduct a portion of your mortgage interest or rent, utilities, and property taxes based on the percentage of your home used exclusively for your business.
Advertising and Marketing: Any expenses related to promoting your business, such as business cards, flyers, online ads, or even your website, are deductible.
Insurance: You can deduct the cost of your business insurance, such as general liability or workers’ compensation, as long as it’s directly related to your janitorial business.
Professional Services: Deduct fees for professional services, like accounting, legal advice, or consulting, which are necessary to help you run your business.
Training and Education: Any expenses related to keeping your skills up-to-date or learning new cleaning techniques are deductible. This includes attending seminars, workshops, or online courses.
Licenses and Permits: You can deduct the cost of any licenses or permits required for your janitorial business.
Employee Wages: If you have employees, you can deduct their wages, as well as any benefits you provide, such as health insurance or retirement contributions.
Strategy #3: Find a CPA-slash-tax-ninja
Finding a CPA who is well-versed in the nuances of the janitorial business can make all the difference in maximizing your tax savings. Here are some tips on how to find and work with a CPA who specializes in your business type:
Ask for Recommendations: Reach out to fellow janitorial business owners or other similar small business owners in your network to ask who they use for their tax needs. Request honest reviews to get a sense of their experiences and satisfaction with their CPA.
Use Online Resources: Search for “CPA for janitorial business near me” on Google or explore websites like the American Institute of Certified Public Accountants (AICPA) to find CPAs who specialize in your industry.
Social Media and Online Forums: Join Facebook groups or online forums for janitorial business owners and ask for recommendations. Engage in discussions to learn from others’ experiences and gather valuable insights.
Check Credentials and Experience: Once you’ve shortlisted potential CPAs, verify their credentials and experience. Look for a CPA with a solid understanding of the janitorial business and tax regulations specific to your industry.
Schedule a Consultation: Arrange a consultation with potential CPAs to discuss your business needs, their approach to tax planning, and their experience with janitorial businesses. This will help you gauge their expertise and whether they are a good fit for your business.
Strategy #4: Understand industry-specific tax regulations
Janitorial businesses may be subject to industry-specific tax regulations, such as sales tax on cleaning services or environmental fees. Ensure your CPA is knowledgeable about these regulations and can help you accurately track and report these taxes.
Strategy #5: Expense tracking for tax deductions
A key aspect of tax planning for janitorial businesses is accurately tracking expenses, as mentioned earlier. Your CPA should be able to guide you in implementing an efficient record-keeping system and provide advice on how to maximize your deductions.
Strategy #6: Maximize cash flow with tax planning
As a janitorial business owner, managing cash flow is crucial for your success. Work with your CPA to develop a tax planning strategy that minimizes your tax liability while maximizing cash flow. This may involve strategic timing of income, expenses, and investments to optimize your tax situation.
Strategy #7: Donate business assets to charity
Reducing your tax burden while giving back to the community can be a winning strategy for your janitorial business. By donating business assets to a charity, you not only support a commendable organization but also potentially increase your customer base by showcasing your company’s philanthropic efforts.
For example, suppose your janitorial business has recently upgraded its cleaning equipment. In that case, you can donate the older, still-functional equipment to a local nonprofit organization that provides cleaning services to low-income households. Advertise your involvement and donation on your website and social media channels to create positive publicity and attract new customers who appreciate businesses that give back.
Strategy #8: Become a homeowner
Owning a home has several tax advantages that can help reduce your overall tax burden. As a self-employed janitorial business owner, these advantages can be particularly beneficial:
Mortgage Interest Deduction: Homeowners can deduct the interest paid on their mortgage, which can significantly lower your taxable income. This deduction applies to both your primary residence and a second home, subject to certain limitations.
Property Tax Deduction: You can deduct property taxes paid on your primary residence and any additional homes you own. This deduction can further reduce your taxable income and help you save on taxes.
By taking advantage of these tax benefits, homeownership becomes a valuable financial tool for self-employed individuals. For a more in-depth look at the tax advantages of homeownership for self-employed people, keep an eye out for our forthcoming article on the subject.
Pro Tip: If you’re self-employed, you may be worried that claiming too many deductions could make it hard to qualify for a mortgage loan. Fortunately, there are home buying and refinancing programs specifically designed to help self-employed individuals like you:
Bank Statement Mortgage: This program allows self-employed borrowers to use their bank statements as proof of income rather than traditional tax returns, making it easier to qualify for a mortgage.
1-Year Self Employed Mortgage: Most mortgages require you to be in business two years, but this program accepts applicants with only one year of self-employment.
Bank Statement 2nd Mortgages: Similar to a bank statement mortgage, this program allows you to use bank statements as proof of income for a second mortgage or home equity loan.
No-Doc Liquidity-Based Loans: These loans are designed for borrowers who have significant liquid assets but may not have traditional documentation for income. Approval is based on your assets, credit score, and property value.
1099 Mortgage: Ideal for those who receive 1099 income, this program allows you to use your 1099s as proof of income rather than traditional tax returns.
DSCR Loans (Debt-Service Coverage Ratio): For investment properties, qualification is based on the property’s cash flow, not your personal income.Start your self-employed mortgage
Strategy #9: Switch from sole proprietor or LLC to S Corp
You might be operating as a sole proprietor or an LLC. However, considering a switch to an S Corporation could potentially save you a significant amount in taxes. By taking income as distributions instead of salary, you may be able to lower your Social Security and Medicare tax obligations.
S Corporations allow business owners to separate their income into two categories: salary and distributions. While the salary portion is subject to both income tax and self-employment taxes (Social Security and Medicare), the distribution portion is only subject to income tax. This structure can potentially save you thousands of dollars in taxes each year.
Strategy #10: Deduct startup costs
You may be able to deduct startup costs from your federal taxes in your janitorial business. The IRS allows businesses to deduct certain expenses incurred before the business begins operating. These costs can include market research, advertising, employee training, and other necessary expenses to start your business.
According to the IRS, you can deduct up to $5,000 in startup costs and $5,000 in organizational costs in the year your business begins. Expenses that exceed these amounts must be amortized over 15 years.
Strategy #11: Contribute to a retirement plan
Creating and contributing to your own retirement plan is an excellent way for self-employed individuals to shelter much of their income. Several retirement plan options are available for self-employed individuals, including Simplified Employee Pension (SEP) IRAs, Solo 401(k)s, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs.
These plans typically allow for higher contribution limits compared to traditional IRAs or 401(k)s, enabling you to save more for retirement while reducing your taxable income.
Strategy #12: Vehicle and mileage deduction
For janitorial businesses that rely heavily on vehicles for transportation of equipment and personnel, the vehicle and mileage deduction can be a valuable tax-saving tool.
Section 179 of the IRS code allows you to write off the cost of a vehicle weighing between 6,000 and 14,000 pounds if it’s used for business. This deduction can provide significant tax savings, especially for businesses that require larger vehicles like vans or trucks to carry equipment and supplies.
List of the vehicle models that might be eligible:
- GMC Sierra 3500HD
- Ford F-250 Super Duty
- F-550 Super Duty
- Nissan Titan 2WD S
- Chevrolet Traverse
- Chevrolet Silverado 6500HD
A more obvious deduction is mileage. Keep track of mileage using an app so it’s easy to find your total at the end of the year.
Strategy #13: Claim depreciation
Depreciation is a tax deduction that allows you to recover the cost of larger business assets over time. As a janitorial business owner, you may have purchased equipment or vehicles that lose value each year. By claiming depreciation on these assets, you can lower your taxable income and recover some of the costs associated with owning and maintaining these assets.
Strategy #14: Deduct health insurance costs
Navigating health insurance as a self-employed individual can be challenging. However, one advantage is the ability to deduct health insurance premiums. You may be able to deduct the cost of premiums paid for yourself, your spouse, and your dependents. This can be a substantial amount each year, helping to reduce your taxable income and save on taxes.
Strategy #15: See if you qualify for Section 199A Qualified Business Income Deduction
Section 199A, also known as the Qualified Business Income (QBI) deduction, is a tax benefit that allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income.
To qualify for the QBI deduction, your business must be a pass-through entity, such as a sole proprietorship, partnership, S corporation, or LLC. There are specific income thresholds and limitations, so it’s crucial to consult with a tax professional to determine your eligibility for this deduction.
Strategy #16: Decide to hire W2 or 1099
As your janitorial business expands, you may need to hire help to manage the increasing workload and boost your revenues. Bringing employees or contractors on board not only supports your business growth but can also help offset some tax obligations.
Deciding whether to hire W2 employees or 1099 contractors depends on your specific business needs and objectives. Here are some primary distinctions between the two:
With W2 employees, you need to handle payroll taxes, withholding federal, state, and local taxes from their paychecks. In contrast, 1099 contractors are responsible for paying their own taxes.
W2 employees usually receive employee benefits, such as health insurance, retirement plans, and paid time off. However, 1099 contractors do not get these benefits from the business.
Employers have more direct supervision and control over W2 employees, while 1099 contractors enjoy greater autonomy and flexibility in completing their work.
W2 employees are protected by employment laws, including minimum wage and overtime requirements, whereas these protections do not apply to 1099 contractors.
Be smart with your income
Don’t let Uncle Sam take more than he’s entitled to. Get smart about taxes and keep more of your money. Make informed decisions about hiring employees or contractors, managing deductions, and structuring your business to maximize your tax savings. By staying proactive with your tax strategies, you can invest more of your hard-earned income back into your janitorial business or personal goals.Start your self-employed mortgage here.
My Perfect Mortgage does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. Consult advisors before filing taxes or engaging in any transaction.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.