What tax tips for house cleaners and maids do I need to know to grow my cleaning business? Are taxes and spending part of a cleaning business plan? And are there tax tips or tax deductions that are standard for house cleaners and maids?
We Ask a House Cleaner about tax tips and ways to track expenses and receipts. Angela Brown gives recommends accounting software like TurboTax, QuickBooks, FreshBooks. Whether you do e-filing or you hire an accountant, your cleaning service wins when you pay your taxes.
Listen: Tax Tips for House Cleaners and Maids
Watch: Tax Tips for House Cleaners and Maids
Hey there, I’m Angela Brown, and this is Ask a House Cleaner. This is a show where you get to ask a house cleaning question, and I get to help you find an answer.
Question: Tax Tips for House Cleaners and Maids
Tax tips for house cleaners. “What do you need to know about taxes if you are a house cleaner?” Let’s go over a few of the basics.
As a house cleaner, you do want to pay your taxes. You know it’s easy to say, “Oh, just give me cash and I’ll just pay the taxes when I get around to it.” But that’s not wise. The IRS could audit you and it will be hard to prove anything without a paper trail.
Without a paper trail, it’s also hard to run a business because you never know what money’s coming in and what money is going out.
Best Tax Tips Include Accurate Records
Cash is a horrible way to run a business and it’s not sustainable. Without a paper trail, you will spend gobs of time re-creating your accounting system. And you need a system to track your expenses, spending, earnings, and payroll.
Today’s technology provides some great accounting options. You just use a business card (credit or debit) and when you make purchases, bam! It’s logged into your accounting software.
When you scan and deposit a check with your mobile banking app – Bam! You can see your deposit almost in real time.
A quick glance at your accounting software, and you can tell what money is coming in and what money is going out. And estimating taxes owed is a breeze.
Tax Tips Include Keeping Receipts for Business Purchases
When you buy items for your cleaning business, or you eat out, put gas in the car, save the receipts. This way you have a backup in the IRS does audit you, and you need to prove your expenses.
Anybody can cook the books and change the accounting software – but the hard copy will keep your business safe.
Tax Tips – Keep Records on File for 7 Years
All right, so once you’ve saved your receipts you want to categorize them and keep them for 7 years.
There are different business categories that allow tax deductions.
For example, do you use a smartphone for your business? My guess is that yes you do. As a business owner, your smartphone is tax deductible. The monthly phone bill and the apps you buy to organize your business are tax deductible. Without the phone, your business can’t function. So, it’s considered a standard and common deduction for the cleaning business.
Also scheduling and booking software you use for your business is tax deductible.
The key is to keep track of what you are spending and how you use it for business.
Tax Tips – Take Common Deductions
Every business has deductions standard or common to that industry. For example, buying cleaning supplies would be a standard and common deduction for the cleaning business. But if you buy a lawnmower it may not be.
A lawn mower would be a standard and acceptable deduction for a landscaping business.
If you use a program like TurboTax, it will allow you to plug in your specific industry and take common deductions.
Common deductions for house cleaners include training, internet access, advertising, marketing, and tradeshows.
Home or Office Deductions Are Savvy Tax Tips
Depending on how your business is set up, you may be able to deduct a part of your home office if you use it to warehouse cleaning supplies. You might even turn your laundry room into a “cleaning station.” This gives you a place to wash your cloths and mop heads, and store and restock your supplies.
And as your business grows, you may move out of your home and into an office taking even a larger deduction.
The key is to have a specific space used for business. Having cleaning supplies scattered all over your home, and no specific workstation leaves you open to the mercy of an auditor.
Tax Tips – Have a Company Car
There are a bunch of tax deductions common to the cleaning business, a car being among them.
You need to be able to get your cleaning supplies to and from your jobs. And you need reliable transportation to transport you and your team.
Ways to deduct a company vehicle vary. You can take a standard deduction which includes actual expenses. This may be the price of the car, car insurance, maintenance, oil changes and tires.
Other ways to deduct car expenses are just a flat mileage fee. An accountant can help you determine which way makes the most sense for your business and allows the biggest deduction.
Either way, the secret to tax success is keeping accurate records.
Tax Tips – Pay an Accountant Specializing in Small Business
Now, the secret to having an accountant is you can hire them to do all the work for you. Or you can do all the work yourself and just pay them a small fee to double check your work. If you choose an accountant, don’t hire just anybody.
Hire an accountant who specializes in small business and knows what deductions are available to house cleaners.
Tax Tips – Learn About Accounting
My suggestion is that you actually get involved in your own accounting. Some say “Well, I’m not good at the numbers so I’ll just give it to someone else.”
I have seen so many businesses that fall apart because somebody else did all the paperwork.
The reality is this, if it’s your business it’s your money. You are in charge.
Learn enough that you can look at your profit and loss statements and know if you are making or losing money.
Learn enough so that you can navigate the lean times when your down employees or accounts.
Tax Tips – Have a Tax Fund for Tax Payments
I want you to get involved in the accounting. If you’re not good at it, guess what? You’re like everyone else. The majority of house cleaners don’t clean house because you specialize in taxes for small business. That’s not how it happens. You get into the cleaning business because you’re skilled at cleaning. But if you’re going to run a cleaning business you have to learn the other stuff like accounting.
So, while you’re learning it, put taxes away each month in a tax fund. Then when you pay quarterly or at tax time each year, you will have the funds you need.
Tax Tips – Know Your Money
The internet is full of celebrities who had millions and “blew it.” They claim their accountants and financial advisors led them astray.
So, if you want to be in control of your money – take control of your money. Learn what it takes to stay in business. Know what money you have coming in and going out. Be responsible for your spending. And pay your taxes on time.
Don’t get ripped off by ignorance or neglect.
Dedicate some time each week to learn about the money side of your business.
Tax Tips – The Rules Do Apply to You
I’ve seen some sad situations in house cleaning. Business owners trying to support their families take today’s money and pay today’s bills. They have no sense of what bills they have and what bills are due next month.
When the bills come around they scramble to find money to pay them. And if there is a hiccup – a cancellation or firing, they can’t make ends meet.
Tax Tips – Use Technology, Software, and Apps to Help You
There are two versions of TurboTax – one is for home and business. Perfect for a solo house cleaner without employees. It will take you a couple of hours to set it up one time. And then once you add your information every report syncs with your schedule C which you use for tax reporting.
The other TurboTax for Business program is for LLC and Corporations and perfect if you have employees or independent contractors.
TurboTax Suggests Tax Tips
Then you add all the different business expenses that your house cleaning business has. TurboTax will show you the deductions available, or if you risk a tax audit.
Then you have a choice to continue or amend your return.
TurboTax will even suggest deductions like employee gifts or employee perks.
Deductions that are standard for the cleaning business will show up.
Tax Tips – Run Regular Reports
If you know what money you spend as a solo cleaner, it makes it easy to forecast future growth. Get in the habit of running regular reports. Compare your earnings and spending from this year to last year and the year before.
Look for patterns. Look at places you can cut expenses or earn more.
As your business grows, the reports become the survival tool of your business. Know what taxes are due and when and have the money to pay them on time.
Ignoring this information can cost you hefty fines.
Update TurboTax Every Year for New Tax Tips
Every year the tax laws change. They make revisions, and updates to amounts owed, and reimbursements available.
When you buy the latest software, you’ll be current on the rules, and regulations of your state. Having current software will also help prevent an audit because your submissions are up to date.
The software is not expensive. It’s a business investment, and the cost of the updated software is also tax deductible. It’s a no-brainer.
Tax Tips – Use Technology for Accounting
We mentioned using accounting software to keep track of expenses. And as a small business owner, it’s a great idea. Instead of receiving cash as payment for cleaning, accept credit cards.
Once the credit card transaction clears your account – it syncs with your accounting software.
And when you buy supplies or pay a business bill with a business credit card that too syncs with your accounting software.
When you do your weekly accounting – instead of spending hours, you spend minutes. You just verify your receipts against your online ledger and Bam! All your accounting is up to date.
Tax Tips the Pros Use – Sync Accounting to TurboTax
TurboTax syncs with lots of major accounting software programs.
Each year or each quarter (depending on when you pay your taxes) you can update your TurboTax with one click.
Gone are the days of spending days, weeks and months sorting through boxes of receipts to figure out your year-end numbers.
It’s all right there waiting for you at your fingertips.
Once you’ve spent the one-time initial investment of two hours to hook up your accounts on TurboTax it’s all there. And even if you buy the new version each year, it updates all your records like magic. You don’t have to keep adding all that stuff each year.
You only update the information when you add new employees, or a new vehicle or move to a new office. (i.e. when you get new expenses that are not in your system.)
Tax Tips for Electronic Filing
There is an electronic filing fee to file your taxes online. But when you buy the latest version of TurboTax each year, it includes one free e-filing.
So, after you’ve done all your electronic updates and you’ve synced your tax info with your accounting software you’re good to go.
You can just hit submit and file your taxes. WOOHOO!
It really is that easy. You’ve already double checked your work. You’ve cleared any possible audits. All the deductions they allow you to take are set.
And if you connect your bank account to TurboTax, you can pay your taxes or receive a refund via direct deposit.
Tax Tips – Get A Second Look If You’re in Doubt
Some house cleaners don’t believe in technology so they will get a second opinion. They do the taxes themselves via TurboTax and then take their records to an accountant. The accountant can look over the records and verify that you left no stones unturned.
And then they can hit send on the e-filing.
Either way is fine. The key is to create a new system today that will serve your business in the long run.
You don’t want to scramble with your finances every year and repeat the same buying, spending and saving errors.
Update your accounting and taxes with current technology. And then set a schedule to verify your profit and loss statements weekly. It’s never been easier and your pocketbook will thank you.