LAUREL, Md. — Knowing the deductions is half the work. The other half is making sure the business is set up to actually claim them.

“The goal for an accountant, in my opinion, is to be strategic and to remove surprises,” says Dave Coyle, owner of In The Bag Cleaners in Wichita, Kansas and the Maverick Drycleaners coaching service, during a recent webinar hosted by the Drycleaning & Laundry Institute (DLI). “That means not meeting with that person once a month or once a year when you drop off all your paperwork as late as possible in March.”

In Part 1 of this series, we covered the heavy hitters — the Augusta Rule, putting children on the payroll, accelerated depreciation on equipment and cost segregation studies on owned real estate. Today, we turn to the structural decisions behind those deductions: how the business is organized, what the owner pays themselves and which pieces of the operation can actually be written off.

Editor’s note: The strategies discussed in this series are presented as general information only. Readers should consult their own tax professional before applying any of them to their individual business.

The Qualified Business Income deduction, or QBI, lets eligible business owners write off up to 20% of their net business income. Whether a cleaner gets the full amount — or any of it — depends on entity type, payroll and how income is structured.

“You will need to bring with you to that conversation, kind of net income that you’re making, payroll totals, obviously knowing what entity type you are,” Coyle says. “If you are a sole proprietorship, a lot of dry cleaners are S-corps, or they might be an LLC that is filing as an S-corp, or some people are C-corps.”

The conversation, he says, isn’t only about confirming eligibility but about finding where income levels can be adjusted to capture more of the deduction.

For S-corp owners, how much they pay themselves is a number the IRS watches. A salary that’s too low relative to the business’s profit can signal an attempt to dodge payroll taxes.

“If you have a million-dollar business making 25% profit and you’re giving yourself a $10,000-a-year salary working 40 or 50 hours a week in the business, that’s a huge red flag,” Coyle says.

The benchmark, he says, is defensibility.

“You want to make sure that the compensation you pay yourself is not only tax-efficient, but it is also defensible,” Coyle says. “So you can say, ‘Look, this is what I’d have to pay someone else to do the things that I’m doing in the business.’”

An LLC early in a business’s life isn’t necessarily the same answer years later, once profit levels change. An S-corp election can be the right move at a certain point, Coyle says, but the direction matters.

“If you start the business off as an LLC, it can then take the S-corp election,” he says. “It’s much more difficult to go backward and take an S-corp and make it an LLC.”

That’s the kind of decision, he says, that warrants a dedicated conversation with the accountant rather than getting folded into a year-end filing.

The home office deduction is one Coyle avoided for years.

“I put this off for a long time before I started taking it,” he says. “Most days I work from my home office. I’ve taken to my accountant the square footage of that space. I’ve taken photos. I’ve kind of done a layout of that. That’s exclusive use for the business.”

The trap, he says, is thinking of the deduction as covering only the physical space itself.

“It’s not just the space in the office, it’s everything that contributes to that,” Coyle says. “So, the heating and cooling for that space, the water, if you have your carpets cleaned, if your windows get cleaned — it’s not that hard for you to break out some of those things, and those dollars add up depending on the amount of that.”

Whether an expense gets categorized as a repair or an improvement affects how and when it can be deducted. Coyle says too much of that work gets booked in ways that don’t maximize the deduction, especially for expenses tied to a home office.

“Repairs that you are doing to the business, improvements that you’re doing to the business, all the expenses that go along with that space in your home office are all things that can become deductions for you to offset that profit that you’re making,” Coyle says.

Federal and state programs offer credits for a range of equipment upgrades, and Coyle says cleaners tend to think too narrowly about what qualifies.

“I want you to think of more than just something big like a solar project,” he says. “There are a lot of other expenses that can be used to gain some of these energy efficiency credits. Often, there are credits available for upgrades such as heating and cooling, boilers and upgrading to more-efficient LED lighting.”

The strategy, Coyle says, is to layer credits on top of the deductions already being taken on the equipment itself.

“The goal here is to stack credits,” Coyle says. “Not just to get a deduction for that piece of equipment, but see whether you can get credits on top of it.”

Come back Thursday for the conclusion of this series, which covers the often-missed items that add up — software, retirement contributions, payroll credits and health insurance — plus Coyle’s case for getting proactive now. For Part 1, click HERE.