LAUREL, Md. — Not every tax-saving move is a six-figure equipment deduction or a cost segregation study on owned real estate. Some are as ordinary as a subscription fee for route software or a cell phone bill that the owner has been paying personally.
“It’s very, very easy to miss easy deductions that you could take, or that you’re taking on the personal side that really can be a deduction from your business,” 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).
In Part 1 of this series, we covered the heavy hitters: the Augusta Rule, putting children on the payroll, accelerated depreciation and cost segregation. In Part 2, we moved to the structural pieces: entity type, the owner’s salary, the home office and energy credits. Today, we’ll examine the final tier — the smaller line items that add up, and the planning habit that makes the whole checklist work.
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.
Subscriptions and Software
Point-of-sale systems, computers, printers, scanners and route software are all deductible. So are the monthly subscriptions that run in the background of most drycleaning operations.
“You just want to make a list of those subscriptions and make sure that you’re taking the deduction for all of those subscriptions so that they can be properly categorized by your accountant,” Coyle says.
The most common leak, he says, is a subscription billed to a personal credit card and never migrated back to the business side.
The Depreciation Check
Equipment already on the books doesn’t need a second look to get its deduction, but knowing what that deduction is month-to-month helps with planning.
“I do this quarterly with our accountant,” Coyle says. “We like to see what the book value and tax value is of those things, so we can then really take a look and put on our monthly P&Ls a good, solid estimate of what depreciation we’re expecting to take, so that we know where we stand throughout each month, throughout each quarter and so that we don’t get big surprises.”
Payroll Review
Cleaners tend to think of payroll taxes as purely a compliance matter. Coyle says that misses half the point.
“You want to have the compliance of the payroll taxes that you’re paying, but in many cases, there are additional credits that you can receive when you have your payroll taxes reviewed,” he says.
That review, he adds, is worth having whether payroll is handled by an outside company, an in-house bookkeeper or the accountant’s firm itself.
Retirement Contributions
Pre-tax retirement vehicles (SEP-IRAs, solo 401(k)s and Roth IRAs) serve two purposes: the tax deduction now, and the compounded growth later.
“You’re trying to reduce taxes and tax liability while building wealth faster,” Coyle says. “It doesn’t take too many looks at compounding interest to realize that having the money in your account, as opposed to it going to taxes, can make a huge difference in the amount of wealth that gets accelerated over time.”
Health Insurance
Deductibility here runs broader than a lot of owners realize, Coyle says, covering not just the owner’s premiums but their family’s and, in some cases, portions of team members’ coverage as well.
“This is everything from what premiums you paid to who’s covered,” he says. “Are you deducting everything that’s available?”
Reimbursing Yourself
An accountable plan lets owners reimburse themselves from the business for expenses they’ve been paying personally, such as gas, a cell phone or office supplies. Coyle’s method for keeping the lines clean is to physically separate the spending.
“By keeping them on separate cards, it really keeps the amounts separate,” he says. “When we go to make that buying decision, we just have to say, ‘Hey, we’re at Sam’s Club. Is this a business expense? Is this a personal expense?’”
State and Local
Tax credits exist well beyond the federal level, and Coyle says cleaners operating in multiple jurisdictions should be asking about them in each one.
“There are often credits that you can get on both the state and local level,” he says. “Every state’s a little different. You’ll have to have that conversation with your accountant based on what state or states you operate in, how sales taxes are set up and any credits or compliance gaps that you have.”
Out of Reactive Mode
Running the full checklist takes time dry cleaners typically don’t set aside, Coyle says, which is why most of it never gets done.
“I know it’s very easy for us as business owners to get stuck in reactive mode,” he says. “We wake up each morning, and sometimes we grab that fire extinguisher, and we’re just looking to extinguish problems.”
The fix, he says, is as practical as a calendar invite.
“My appointments for Q3 and Q4 are already on the calendar to have those meetings,” Coyle says. “Once they’re on the calendar for me, they’re going to happen, and that’s what I’d recommend for you.”
For Part 1 of this series, click HERE. For Part 2, click HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
