This guide is to give you an overview of house cleaning business taxes.
So, I don’t know any house cleaning business owner who started their business to do their own small business taxes. If I had to guess, you neither did you. In fact the words small business taxes probably scare you? Well don’t worry they scared me too.
That is why I created this guide to provide my experience and what I have learned as a business owner. Now, I am by no means a tax accountant so article does not take the place of hiring an accountant. These are guidelines from my experience as a House Cleaning business owner only.
Disclaimer: This article is meant to provide general overview of house cleaning business taxes, which should not be construed as professional, financial, tax or professional advice. These are my personal opinions only from my experience as a residential house cleaning business owner.
So, now that we established I am not a tax accountant, but just providing my experience as a residential house cleaning business owner. The first step you need to do in completing your cleaning business taxes is to hire an accountant.
Actually, I thought I could do my own taxes because I previously worked in accounting and auditing before starting my business. I thought, how hard could it be?
Well I got busy and did not realize business taxes have different deadlines than personal taxes. So I filed late and managed to rack up a $1700 tax bill because of it. Yeah, so hire an accountant.
Accountants do not cost as much money as you may think. And if you keep your finances organized as I mentioned above, they will not require many hours to file your returns.
How to save money on your accounting fees
The best way to save money on your accounting fees is to keep up with your bookkeeping through out the year. By doing this you will be saving your accountant lots of time
What that means is, you are recording all of your expenses and your earnings in a nice organized way that is easy for your accountant to determine the total amount of all of your expenses and all of your earnings.
So then, they just have to take that information and complete your tax returns. If you have a box of receipts and have not recorded them in an accounting software or spreadsheet then they will have to spend the time to do that for you.
Get access to my FREE Resource Library to download a copy of my BOOKKEEPING WORKSHEETS (a client deposit logs and an expense tracking form) to help keep track of your bookkeeping through out the year
Choose a business structure
Your business structure will determine how and what forms you file your business taxes on. So before you file your cleaning business taxes you need to choose your business structure.
House Cleaning businesses come in all different shapes and sizes. Make sure to always consult with an Accountant first before choosing your structure. They can help walk you through the best options for your business and personal situations.
Before you talk to your accountant you can do some research on the different business structures to get a feel for what you may be leaning towards
There are many different options…
- Sole proprietor
- Limited Liability Company
- Corporation – there are different types of corporations as well. Most commonly there are S-corps and C-corps and each have different tax rules.
The Small Business Administration does a good job comparing each of the different types of structures. You can view that here.
Separate Personal Finances from Business Finances
Before you start making and spending money in your cleaning business you must separate your business money from your personal money. To do this, you will need to open a business checking account.
By having a separate checking account it will be easier to see how much money is coming in and how much is going out. When you mix funds, it will be easier to ‘loose’ tax deductions. Your business expenses will get lost in your personal transactions making your tax deductions smaller.
Tax Deductions for Maid Services
Tax deductions are business costs that may be used to reduce your taxable earnings, therefore reducing your tax bill. The rules and laws can change each year, so it is important that you keep up to date on them.
If you complete business functions inside your home you may be eligible for a home office deduction. These areas of the home you use solely for business purposes may be tax deductible. Talk to your accountant to see if this is an option for you. Some questions to consider are:
- Do you store cleaning supplies in your home?
- Do you wash towels in your home?
- Do you complete office tasks.
Vehicle to travel to and from the business
There are 2 separate ways to handle your vehicle expense. Either have a vehicle designated just for business use or you can use your personal vehicle and claim a standard mileage deduction.
Larger cleaning businesses may purchase a vehicle for the use of business. If this is the case you can pay for all of the gas and vehicle expense straight from your business account.
Standard mileage deduction
But most of you may not be running a business large enough to purchase a business vehicle. Instead if I were to guess you are using your personal vehicle to drive to and from your clients homes.
If this is the case, then you would not be paying for your vehicle expense directly from your business accounts. Therefore could instead claim the standard mileage deduction.
Do you have drive on any roads that require toll fees? If so, don’t forget to include them in your cleaning business taxes.
In Florida we have an electronic toll system (called the Sun Pass) where we can go online and down load all tolls that we have paid. This makes it a little easier tracking toll expenses.
Do you use your cell phone to take client calls or to quote cleaning services? If so, a portion of your cell phone bill could be used as a tax deduction.
Did you donate a basket to your child’s school auction or a local event? Or did you donate a cleaning service to a cancer patient who is unable to clean their home at this time? If so the value of that basket or free cleaning is a marketing expense.
More than likely you do not have a lawyer or accountant on staff. If you hire an accountant to to file your taxes, or a lawyer to help develop your cleaning contract, as a cleaning business owner you can deduct those services. Make sure you save your receipts and record all fees for professional services.
Did you buy small gifts for each of your clients for the holiday season? If so the cost of those gifts are a business expense and can be deducted from your business taxes. As always, make sure you save your receipts and record each expense.
Business License and fees
Some counties or states require house cleaning businesses to apply and pay business license fees. If you run your business in an area that requires a business license, the fees that you pay are tax deductible. So make sure each time you pay you renew your license with your state and or county you save your receipt and record it.
Interest or Loans
Do you have a credit card or took out a small business loan and have to pay interest? If so, the interest you are paying is a business expense and could be eligible as a tax deduction for your cleaning business.
Did you know the taxes you pay are also a business deduction. So make sure you don’t forget about those.
Business Training resources and fees
Did you attend any paid training webinars, take any certifications or purchase any training materials (like my Maid Services Guide to Cleaning Professionally). If so, save those receipts for your cleaning business taxes.
Training expenses are business expense and can be used as a tax deduction for your cleaning business.
Always track every expense. This way you know how much money you are spending on your business. The obvious expenses include all cleaning supplies, any equipment you purchase.
Save all receipts. It can be easy to run to Wal-Mart on your way to a job to pick up a cleaner you ran out of or that you forgot to pack for the day. Make sure you save all of those receipts. To help with this keep a small receipt holder in your vehicle. This way when you get out of Wal-Mart you can stick the receipt right in with others.
Some expenses you may forget about:
- App’s on your cellphone that you purchase for your business use
- Printing expenses such as ink or paper used to print out client forms or letters
- Your email service provider if you use one to send out newsletters
- Web hosting, if you have a website and pay for hosting this expense is usually paid a year or 2 in advance (don’t forget to add it as an expense when this happens)
Always track your revenue. Without tracking your revenue you will never know how much money you are making from your house cleaning jobs.
A simple way I would track my revenue was by having a calendar of who I cleaned for with the dollar amount of the cleaning fee.
File and Pay your taxes on time
Make sure you ARE paying your taxes. It may be tempting to not claim all of your cleaning earnings, especially those paid in cash to avoid paying taxes. But this is never a good idea. Also, this is why its good to have a separate business account as I mentioned above. So you can actually see how much money you are earning cleaning houses.
If you do not pay or file your taxes on time, you can easily collect hefty fines. I once filed my business taxes late because I did not pay attention to filing date. I racked up $1700 in tax bills. I lost a lot of money. After that I hired an accountant who knew what he was doing and never filed taxes late again. I learned that filing taxes was not my thing!
Save a portion of your earnings for the unknown
A smart business owner will save a portion of their earnings in a ‘rainy day’ fund. This is used for un expected events that you do not plan for. Having this fund can be the difference between a business who can make it long term verses a business who has to shut down when things get rough.
So remember that time when the world got COVID-19 and the country shut down? You probably weren’t able to clean houses, am I right? Well that is the rainy day that you wish you stashed away a portion of your earnings.
Having a cushion, protects you and your business from unknowns that can cost you unexpected money or business loss.