We Hate To Spoil Your Day, But Tax Season Is Coming

This is the time of the year when every laundry owner should be reviewing what their tax picture will look like when final incomes and expenses for this year are calculated. Doing it now still leaves you a few weeks time to make adjustments. Sure, it’s only November, and most of us don’t even start to think about taxes till April, but the earlier you start the thought process, the more you could save. For instance, purchasing some new equipment this year could qualify for tax reductions against this years income, and reduce the pain felt when your 2007 taxes are paid. Also some construction and equipment purchases are further deductible if improvements to a laundry are made to make the business more handicapped accessible. Operators want to first find out whether or not they made money, and get some idea of what amount of tax that income will require in taxes. Then try to figure the most reasonable way of paying as little tax as possible. That is not considered tax planning, but rather it’s a tax reaction. Tax planning is to figure how to approach an issue over the next several years. While the things one can do to bring in more business is limited by how imaginative we are about promotions and advertising, one of the best ways to increase net income is to reduce our costs in the most practical ways. Equipment Payments: If you have payments on your washers and dryers, or on the laundry itself, what is the interest? Can you refinance, reduce interest and lower monthly payments? Perhaps you could pay off the notes over a longer period of time. While that might prove to be costlier over all, it could reduce the payments to allow greater monthly net income. Most equipment financing costs are higher than would be paid using real estate as security. Is there room to save by taking a second mortgage on your home and paying off equipment notes? Lower payments should provide a higher net income. There are also some interesting tax benefits to financing using real estate as security. Check with your tax advisors. Because so many laundry owners are also engaged in other businesses or careers, they often feel they are too busy to keep accurate tax records. Bookkeeping systems used are the result of trial and error, not tax planning. Many, if not most, operators use bank records, plus memory, as their bookkeeping system. Some actually have a single account for both personal and business use. They may file and stay out of trouble, but do they get maximum advantage from owning a business? Here is where good tax planning and accurate record keeping come in. First, don’t co-mingle your personal and business records. Use separate bank accounts and use them only for the purpose intended. For one reason if no other: If the IRS were to audit your laundry, would you also want them to audit you personally? By keeping things businesslike and separate, a laundry owner can take advantage of tax breaks, such as the deductions for the miles they drive for business purposes. The IRS requires keeping an up-to-date log or daily record of miles driven, not reconstructions based on memory. The mileage allowed is for trips made for the business, such as travel to buy parts or supplies. Home to business mileage usually is not allowed, but travel between laundries owned usually is. One suburban owner was a corporate employee with an office in the city some fifty miles away. He purchased another laundry near his office and began to deduct the daily mileage driven between the two laundries. That way he could deduct his drive. An operator’s mother lived miles away, near a major vend supplier. He visited her weekly and began buying vend supplies too, in order to make the mileage driven deductible as a business expense. Yes, he did survive an audit. Equipment Purchases. Better to take as expense or depreciation? Smart laundry owners will look at which choice offers them the best tax advantage. Most equipment bought to expand or to replace existing units qualifies as an expense in the year purchased so long as the sum total is under $20,000. Over that, it must all be depreciated over the 5 to 7 years depreciation periods allowed by the IRS. The key is to anticipate what your tax burden will be and decide which method will give you the greatest net income. Are Tax Credits an Option? Since 1990, small business owners have been able to take credits off of the tax they owe for expenses incurred making their places of business more accessible to disabled citizens. The law is the Americans With Disabilities Act, or ADA. Basically, half of the money spent in excess of $250 to a total of $10,250, in any tax year, can be credited to the taxes owed. The business person eats the first $250 and then can take a $5,000 credit against taxes owed. The other half can be depreciated. Many laundry operators have used ADA to install new front load washers and stack dryers, both of which are thought to be more handicapped accessible than a typical top load washer or single pocket dryers. Don’t forget that tax credits can be carried forward. It is, in effect, a sum of money banked with IRS which can be used to satisfy your tax obligations. There is a statement in the ADA law to the affect that changes made must be reasonable and necessary, which leaves a lot of discretion in the hands of a tax auditor. So if you choose to use ADA to improve your laundry, do it within reason. Do laundry operators really need professional tax advice? The answer is yes. With knowledgeable tax advisors, business people can sleep better at night by knowing that they are not in violation of tax laws or at risk for interest charges and penalty payments. Also, since everybody recommends that business owners never speak directly with an IRS auditor, having the professional tax advisor there to speak on behalf of the business is a valuable benefit in case there ever is a need. In addition to the peace of mind a laundry owner gets dealing through professional tax people, there is the probability that the professionals will save them money. Word is that tax professionals save their clients more in taxes than they charge for services. Talk to successful coin laundry owners. They all seem to use tax professionals. Maybe it’s one of the reasons they’ve become successful.