6 end-of-year tax and bookkeeping tips for paint pros
And there it went … 2019 is in wrap-up mode. If you’re like a lot of other painting professionals, taxes and end-of-year bookkeeping is on the mind. Here are six tips from Morgan Ray, chief operating officer of BookkeepingForPainters.com, to help keep your taxes and books organized for the coming year:
TIP 1: SORT EXPENSES CORRECTLY
If your bookkeeping record system is lacking, you’ll need to take the time to look back through receipts for documentation of this year’s expenses. If you have an unorganized box of receipts, consider inputting them into a system throughout the year in 2020. But for now, as you review expenses, make sure to sort them before handing them off to your tax preparer. Important groupings include:
- General business expenses
- Automobile expenses
- Office expenses
- Utility bills
- Mileage tracking
“There are different ways to allocate each group on your tax return. That’s why your tax preparer needs to separate them,” Ray said.
TIP 2: DIFFERENTIATE BUSINESS INCOME FROM FUND TRANSFERS
Revisit your bank statements to review true income from work versus money transferred in and out of the account that is not business-related. This will help your tax preparer get a true read on what the actual income total is for the year, instead of assuming a number that might be too high.
TIP 3: BUY EQUIPMENT AND DEPRECIATE ONLY IF IT MAKES SENSE
If given the option to depreciate a piece of equipment over five years or take the full depreciation today, most contractors will choose the latter. However, make sure you’re purchasing an item that’s a money-maker and one that you plan to keep for a reasonable amount of time. If you purchase the equipment this year and write it all off, then sell it next year, you’ll end up needing to pay back some of that savings next year by tacking the sale price on as income.
“This is the time of year where people get a little antsy to reduce the tax bill. Don’t go out and buy things unless you know they’ll be fully utilized and will make you money,” Ray added.
TIP 4: ASSESS VEHICLE EXPENSES
Talk to your tax preparer about mileage and vehicle expense deductions. You’ll need to make the choice whether to utilize all gas, maintenance and repair receipts, or deduct a standard mileage rate expense. Mileage is easier to calculate and provides a fair deduction for most companies; however, there are cases where if a vehicle has been recently purchased and fully depreciated, the mileage expense may not be allowed.
TIP 5: LOOK AT INSURANCE EXPENSES
Talk to your tax adviser about insurance premiums you’ve paid throughout the year to find out if they’re deductible under your current business arrangement. Because many painters are organized under a subcontractor model, they may not realize personal insurance expenses can be written off, Ray explained. For example, personal accident and health insurance for an owner can be taken as a deduction. If you have employees and provide health benefits, those are deductible, too.
TIP 6: DON’T FORGET YOUR 1099S
If you haven’t had contract workers fill out their W9s yet, it’s time. Once you do that, make sure you issue their 1099s by January 31, 2020 or, under federal law, for each 1099 that’s up to 30 days late, you’ll see a $50 penalty. And if you are more than 30 days late, expect a $100 penalty, Ray said.
For more business tips for your painting business, visit inpaintmag.com