Whether you mow a few yards as a side gig or have a full-service lawn care business with employees, taxes are as unavoidable as rainy days. Of course, you want to pay less in taxes if you can. Here’s a look at where you can save money and what you need to know to avoid penalties.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
Employee vs. Independent Contractor
If you own a lawn care business or work for yourself, you’re usually an independent contractor or sole proprietor. Some businesses choose to form a corporation as they grow, or you may be in a partnership with someone else.
The only times you would be an employee are if you’re working for someone else’s lawn care business or if you’re on the in-house maintenance team for a large business. If you’re an employee, you’ll get a W-2 and file a basic tax return. This post is a guide for business owners.
Compared to employees, independent contractors or businesses have
- Additional tax responsibilities
- More ways to take tax deductions
- Extra ways to save for retirement
This guide covers all of those things.
If you get paid by cash, check, or direct deposit, you may get a 1099-NEC. Your business clients are legally required to issue you one if they pay you $600 or more during a year. Your homeowner clients are not.
If you use an electronic payments service like PayPal or Square, your clients should not issue a 1099-NEC. Instead, you’ll get a 1099-K from your payment processor if you receive more than $600 in payments during the year. Your 1099-K will include both business and residential payments.
Tip: Using a payment service that gives 1099-Ks is a good way to avoid having to give your Social Security Number out to a bunch of small businesses.
Most lawn care businesses either charge per cut or per month. Those fees and any fees you charge for extra services are income. Tips are also income. When you’re an independent contractor, tips count the same as your set prices. The reason for this tax rule is to avoid people trying to game the system by charging a low price and “suggesting” a high tip.
So far, we’re talking about gross income. When you file your taxes, report every penny clients pay you. You’ll claim your write offs on a separate line.
How much does a lawn care business make?
The average lawn care independent contractor makes about $5,000 to $50,000 in their first year. Owners of established lawn care businesses with employees bring home about $160,000 to $250,000 for themselves.
Taxes You’ll Owe
If you’re an independent contractor or business owner, you’ll pay the following taxes.
- Federal income taxes on your profits according to your tax bracket
- Self-employment taxes on your profits at a rate of 15.3% (you pay the employer and employee shares of Social Security and Medicare taxes)
- State incomes taxes on your profits where applicable
- Sales tax on your services (depending on your state)
- Sales tax on any products you sell, like sprinklers or fertilizer (many states have different sales tax rules for products versus services)
If you have employees, you’ll also be responsible for payroll taxes. This includes withholding income taxes, Social Security taxes, and Medicare taxes, as well as paying your employer share of FICA taxes and federal unemployment taxes. The deadlines and filing requirements depend on how many employees you have. The IRS charges large penalties if you get it wrong. I strongly recommend that you use a service like QuickBooks Payroll to take care of payroll taxes for you. The small monthly fee is worth avoiding the hassle of trying to figure out payroll tax rules and the problems that can come up if you get it wrong.
ps. You can’t 1099 your workers to avoid dealing with payroll taxes. It’s against the law, the IRS will find out eventually, and the penalties are severe.
When you’re an independent contractor, you take business deductions on Schedule C. Business deductions come out of your gross business income before you get your net profit. You do not have to itemize your deductions to claim business deductions.
The following deductions are usually available.
- Mileage. You can deduct your mileage driving between customers, picking up supplies, and for other business purposes. The standard mileage rate for 2022 is $0.585 per mile. If you track your actual vehicle expenses (gas, insurance, depreciation, repairs, etc.), you can deduct that amount if it’s larger than the standard mileage rate. If you use the same vehicle for work and personal purposes, you can only deduct the business-related portion of your expenses.
- Insurance. Business insurance is generally deductible. If you drive your personal vehicle, your car insurance is covered by your standard mileage deduction.
- Advertising. Whether you advertise online, in a newspaper, or on TV, your advertising expenses are also deductible.
- Equipment purchases. Large equipment purchases, such as a lawn mower, are deductible using depreciation. Depreciation spreads out your deduction over several years instead of taking your deduction all at once. Depreciation applies for large capital purchases that are supposed to last for several years. Your tax software will guide you through the rules.
- Equipment rentals. If you rent or lease equipment, you can deduct those costs when they happen.
- Equipment repairs. Repairs are also deductible when they happen.
- Supplies. Disposable or usable items like fertilizer or weed whacker string are deductible when you buy them.
- Employee wages. Employee wages are deductible.
- Office expenses. If you rent an office, you can deduct the office rent as well as your office supplies. If you use a home office, you may be eligible for the home office deduction if you use that office exclusively for your business and for no other reasons.
- Professional services. If you hire an accountant or use tax software to file your tax return, pay for QuickBooks, or hire a lawyer to make an LLC for you, those are all deductible professional services expenses.
- QBI deduction. The qualified business income deduction is a special deduction that gives you an automatic 20% of your net profits as a deduction. The purpose of this deduction is to get sole proprietorships, partnerships, and LLCs on a level playing field with the lower corporate tax rates passed under President Trump.
- Retirement contributions. In addition to your usual IRA contributions, business profits also make you eligible for SEP IRA or Solo 401(k) contributions if you want to increase your retirement savings.
- Health insurance. If you buy health insurance, there is a separate line on your tax return to deduct it since health insurance provided by employers isn’t taxable.
Forming an LLC
If you have employees, you may also want to look into the benefits of forming an S-corporation. An S-corporation often allows you to pay less in Social Security and Medicare taxes.
Tax Due Dates
There are four deadlines to be aware of.
- Your personal tax return with your Schedule C is due April 15th as always.
- If you operate as a sole proprietor, you will need to make four estimated tax payments per year (one each quarter).
- If you choose to be taxed as a corporation, you will need to file a separate corporate tax return. The deadline varies.
- If you have employees, you will need to make regular payroll tax deposits and file payroll tax returns. The number of times per year depends on how many employees you have.
|Action Needed||2021 Tax Year||2022 Tax Year|
|First Quarter Estimated Tax Payment Due||April 15, 2021||April 15, 2022|
|Second Quarter Estimated Tax Payment Due||June 15, 2021||June 15, 2022|
|Third Quarter Estimated Tax Payment Due||September 15, 2021||September 15, 2022|
|Fourth Quarter Estimated Tax Payment Due||January 15, 2022*||January 15, 2023*|
|Receive Your 1099||No later than January 31, 2022||No later than January 31, 2023|
|File Your Tax Return||Monday April 18, 2022 (due to Good Friday and Passover on the 15th)||Tuesday April 18, 2023 (15th is a Saturday; Monday is Washington, D.C., Emancipation Day)|
|Extended Filing Deadline||Monday October 17, 2022 (15th is a Saturday)||Monday October 16, 2023 (15th is a Sunday)|
The most popular accounting software for lawn care businesses is probably QuickBooks. A lot of people don’t like QuickBooks, but it’s one of those companies that’s big because everyone uses it anyway. FreshBooks is a similar but smaller alternative to QuickBooks. You can view other accounting and bookkeeping alternatives here.
Frequently Asked Questions
It depends on the state. In some states, it can also vary based on whether you’re charging for services or products.
The business activity code for landscaping services is 561730.
Taxes for lawn care businesses can sound complicated, but they don’t have to be. As long as you understand the basics of what to ask, your tax software or payroll service can guide you through everything else.