Landscaping Business Tax Deductions Tips

As a self-employed landscaping business owner, you’ve already taken the leap to be your own boss. But it’s just as important to keep as much hard-earned money as possible. This is where lawn care business tax deductions come into play.

It’s not only about deductions but also about understanding the various aspects of the tax code that can work in your favor.

It’s not just about deductions; there’s even more to it than that. Here are the 10 best tax strategies to help landscaping business owners keep the most money after tax day.

1. Claim your landscaping/lawn care business ERC tax credit

The Employee Retention Credit (ERC) is a valuable tax credit designed to help businesses keep employees on payroll during the COVID-19 pandemic. To be eligible, you must have experienced a significant decline in gross receipts or been subject to a government-mandated shutdown.

Many landscaping businesses that did work for commercial office buildings may have experienced lower gross receipts during the pandemic.

The tax credit can be worth upwards of $15,000 per employee for 2020 and $28,000 per employee for 2021.

Even though the tax credit is for those years, you have until 2025 to review your payroll and amend changes and apply for the credit.

2. Claim landscaping and lawn care business tax deductions

Home Office Deduction: If you use part of your home exclusively for your landscaping business, you may be eligible for the home office deduction. This could include a deduction for rent, mortgage interest, utilities, and other home-related expenses.

Vehicle Expenses: If you purchased a vehicle between 6,000-13,999 pounds and use it for your business, you may be able to write off the entire purchase price. Also, you can deduct either the standard mileage rate or expenses like gas, maintenance, and insurance.

Equipment and Supplies: Deduct the cost of tools, equipment, and supplies you purchase for your landscaping business. This can include everything from lawnmowers and trimmers to fertilizers and plants.

Advertising and Marketing: You can deduct expenses related to promoting your business, such as website costs, business cards, and advertising materials.

Business Insurance: Premiums for liability insurance, property insurance, and other types of business coverage can be deductible.

Professional Fees: Expenses for hiring accountants, attorneys, or other professionals for your business can be deductible.

Travel Expenses: If you attend conferences or trade shows related to your landscaping business, you can deduct travel expenses like airfare, lodging, and meals.

Education and Training: Deduct expenses for continuing education, workshops, or training courses that improve your landscaping skills or help you stay up-to-date with industry trends.

Employee Wages and Benefits: If you have employees, you can deduct their wages, benefits, and payroll taxes as a business expense.

Retirement Contributions: As a self-employed business owner, you can contribute to retirement accounts like SEP IRAs, SIMPLE IRAs, or Solo 401(k)s, which can help reduce your taxable income.

3. Find a CPA-slash-tax-ninja

To make the most of your tax situation, finding a CPA who is well-versed in the intricacies of your landscaping business is essential. Here are some tips to help you find the perfect CPA:

Ask for Recommendations: Reach out to other landscaping business owners, friends, or family members who might know a good CPA. They can give you an honest review and help you find someone who understands your needs.

Search Online: Search for “CPA for landscaping business near me” or browse professional directories to find a CPA specializing in your industry.

Check Social Media and Online Forums: Join Facebook groups or online forums dedicated to landscaping businesses, and ask for CPA recommendations from fellow members.

Interview Potential CPAs: Once you’ve found a few candidates, interview them to gauge their experience, knowledge, and communication style. Make sure they are familiar with the tax laws and deductions specific to landscaping businesses.

4. Deduct vehicle and equipment expense

For landscaping businesses, the Section 179 deduction can be especially beneficial. This tax provision allows you to deduct the entire cost of qualifying equipment and property – even the full cost of vehicles weighing between 6,000-13,999 pounds – in the year it’s placed in service rather than depreciating it over several years. This includes vehicles, machinery, and software used in your landscaping business.

5. Claim green tax credits

As a lawn care business owner, you may qualify for various green tax credits and incentives, such as energy-efficient equipment, water conservation, or eco-friendly materials. Be sure to research federal, state, and local programs that may apply to your business.

6. Engage seasonal workers

Many landscaping businesses hire seasonal workers during peak seasons. Be aware of the tax implications and benefits of hiring temporary employees, such as not being subject to certain payroll taxes or claiming the Work Opportunity Tax Credit for hiring workers from specific target groups.

7. Donate business assets to charity

Reducing your tax burden while supporting a good cause and attracting new customers is a win-win situation. You can donate business assets to charity and positively impact your community. For example, you could collaborate with a local community garden or environmental organization, offering landscaping services and donating plants or equipment you no longer need.

By advertising your involvement and donation, you can attract customers who appreciate businesses that give back to the community. This helps you establish a strong local presence and potentially results in valuable tax deductions for your business. Just keep detailed records of your donations and consult your tax professional to ensure you’re correctly claiming these deductions.

8. Become a homeowner

Owning a home comes with several tax advantages that can benefit self-employed individuals like landscaping business owners. Two key tax deductions associated with homeownership are:

Mortgage Interest Deduction: As a homeowner, you can deduct the interest paid on your mortgage loan. This deduction can significantly reduce your taxable income, especially during the initial years of your mortgage when interest payments are highest.

Property Tax Deduction: Homeowners can also deduct property taxes paid on their primary residence. This deduction can help offset the costs of owning a home and lower your tax burden.

Bonus tip: Home loan programs if you write off business expenses

Mortgage lenders use income after write-offs to qualify you for a home loan. But here are some home-buying and refinance programs specifically designed to help self-employed individuals:

Bank Statement Mortgage: This type of mortgage uses your bank statements as proof of income, allowing lenders to understand your financial situation beyond tax returns better.

1-Year Self-Employed Mortgage: A mortgage program that requires only one year of self-employment, documented only by tax returns.

Bank Statement 2nd Mortgages: These second mortgages use bank statements to determine your qualifying income. Use them to tap into your existing home’s equity without using tax returns.

No-Doc Liquidity-Based Loans: These loans are based on your liquid assets rather than your income, and require little or no documentation.

1099 Mortgage: This program takes your 1099 earnings into account when determining your eligibility.

DSCR Loans: Debt Service Coverage Ratio (DSCR) loans use the rental property’s cash flow instead of personal income to determine your ability to repay.

• Self-employed mortgage programs
• Refi, Cash-Out Refi, and Purchase
• Primary, Second, Investment Homes
• No tax returns

Get Qualified

9. Switch from sole proprietor or LLC to S Corp

Changing your business structure from a sole proprietorship or LLC to an S Corp can save you significant taxes as a small business owner. The key benefit of an S Corp is that it allows you to take income as distributions rather than as salary, which can reduce your Social Security and Medicare tax liability.

You’ll still need to pay a reasonable salary in an S Corp, but any additional income beyond that can be taken as distributions. These distributions are not subject to self-employment taxes, meaning you could save thousands of dollars each year.

To make this switch, it’s crucial to work with a knowledgeable CPA who can guide you through the process and ensure you’re reaping the full benefits of becoming an S Corp. Keep in mind that there are additional administrative tasks and compliance requirements associated with an S Corp, so it’s essential to weigh the pros and cons carefully before making a decision.

10. Deduct startup costs

You may be eligible to deduct certain startup costs from your federal taxes. According to the IRS, startup costs are expenses incurred before your business begins operations, such as market research, advertising, training, and other initial expenditures.

Here’s how you can deduct startup costs from your federal taxes:

First-year deduction: You can deduct up to $5,000 in startup costs in the first year of your business operations.

Amortization: Startup costs that exceed the first-year deduction limit can be amortized over 15 years, beginning from the month your business starts operating. To claim this deduction, you must file Form 4562, Depreciation and Amortization, and your tax return.

11. Contribute to a retirement plan

One of the best ways to reduce your taxable income and save for the future is by contributing to a retirement plan. There are several retirement plans designed specifically for self-employed individuals, including:

SEP IRA (Simplified Employee Pension): SEP IRAs allow you to contribute up to 25% of your net earnings from self-employment, with a maximum contribution of $58,000 for 2021 and $61,000 for 2022.

SIMPLE IRA (Savings Incentive Match Plan for Employees): A SIMPLE IRA is designed for small businesses with 100 or fewer employees.

Solo 401(k): A Solo 401(k) is a 401(k) plan designed specifically for self-employed individuals with no employees (except for a spouse).

Individual Retirement Account (IRA): Although not specifically designed for self-employed individuals, a traditional or Roth IRA can be a good option for retirement savings.

12. Vehicle and mileage deduction

For businesses like landscaping, plumbing, or real estate, where a vehicle is used heavily for work purposes, you can use vehicle and mileage deductions to reduce your taxable income.

Section 179 Deduction: According to Section 179 of the IRS code, you can write off the cost of a vehicle weighing over 6,000 pounds but under 14,000 pounds if used for business purposes. This includes trucks, vans, and SUVs that meet the weight requirements. The deduction allows you to expense the entire vehicle cost in the year you start using it. Eligible vehicles include Chevrolet Silverado HD, Ram 3500, GMC Sierra 2500HD, and more.

Mileage deduction: In addition to the Section 179 deduction, you can also claim a mileage deduction for business use of your vehicle. You have two options for calculating this deduction:

Standard mileage rate: The IRS sets a standard mileage rate each year that covers the cost of operating your vehicle for business purposes, including gas, maintenance, and depreciation. For example, the standard mileage rate for 2022 was 58.5 cents per mile. To claim this deduction, track your business miles and multiply them by the standard mileage rate for the year.

Actual expenses: Instead of using the standard mileage rate, you can deduct the actual expenses related to your vehicle’s business use. This includes gas, maintenance, repairs, insurance, and depreciation costs. To calculate this deduction, you’ll need to keep detailed records of your vehicle expenses and determine the percentage of your vehicle used for business purposes.

13. Claim depreciation

Larger business assets, such as equipment and vehicles, depreciate yearly, and you can claim this loss as a tax deduction. Depreciation allows you to recover the cost of these assets over time, helping to reduce your taxable income.

You’ll typically use the Modified Accelerated Cost Recovery System (MACRS) to calculate and claim depreciation. This system assigns specific depreciation periods to different asset categories. For example, landscaping equipment and vehicles usually fall under a 5-year property category. To claim depreciation, you must file Form 4562, Depreciation and Amortization, with your tax return.

14. Defer your income

If you expect to make less income in the following year due to an extended vacation or other reasons, you can consider deferring your income to lower your taxable income for the current year. By delaying client invoices toward the end of the year, you can ensure that the income is collected in the next calendar year.

Deferring income can be particularly beneficial if you expect to be in a lower tax bracket in the following year, as it can help you save on taxes.

15. Deduct health insurance costs

Navigating health insurance as a self-employed individual can be challenging, but there is one significant advantage: you may be able to deduct health insurance premiums. These premiums can amount to a substantial sum each year, making the deduction an essential tax-saving strategy for self-employed individuals.

If you’re self-employed and not eligible for an employer-sponsored health plan through your spouse or another job, you can deduct the cost of health insurance premiums for yourself, your spouse, and your dependents. This deduction is claimed as an adjustment to income on your tax return, meaning you don’t need to itemize deductions to benefit from it.

16. See if you qualify for Section 199A Qualified Business Income Deduction

The Qualified Business Income (QBI) Deduction, also known as the Section 199A deduction, is a tax break for self-employed individuals and small business owners. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from a sole proprietorship, partnership, S corporation, or some rental activities.

To claim the QBI deduction, your taxable income must be below a specific threshold. If your income is above these limits, the QBI deduction may be subject to limitations based on factors such as the type of business you operate and the amount of W-2 wages paid by your business.

Depending on your specific circumstances, you can claim the QBI deduction using Form 8995 or Form 8995-A.

17. Decide between W2 or 1099 employees

As a business owner, you might reach a point where hiring help becomes necessary to scale your business and increase revenues. Employees or contractors can help you manage your workload and potentially offset some of your tax obligations.

Deciding whether to hire W-2 employees or 1099 contractors depends on your business needs and the type of work required. Here are some key differences:

W-2 Employees:

• Generally work for you on a regular basis.
• You control their work schedule, methods, and tools.
• You’re responsible for withholding and paying payroll taxes.
• You need to provide employee benefits like health insurance and retirement plans.
• You have more control over the quality and consistency of work.

1099 Contractors:

• Work independently and usually have multiple clients.
• You don’t control their work schedule or methods.
• They’re responsible for their taxes and benefits.
• You only pay for the work they do, without the costs of benefits or taxes.
• They offer more flexibility, especially for short-term or project-based work.

To decide which is better for your business, consider factors like your level of control over the work, the duration of the work, and the costs associated with each type of worker. For more information, check out Business.com’s comparison and Hourly.io’s guide.

Be smart with your income

To keep more of your hard-earned money, being smart about taxes is essential. Ensure you’re taking advantage of all available deductions and tax strategies for your business, and consult with a tax professional to help you navigate the complexities of the tax system. Doing so can minimize your tax obligations and maximize your income.

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.