Lawn Care Business Tax Guide

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.

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.

Getting 1099s

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.

Calculating Income

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.

Tax Deductions

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

Forming an LLC does not change your tax situation. There may be legal benefits of operating under 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 Needed2021 Tax Year2022 Tax Year
First Quarter Estimated Tax Payment DueApril 15, 2021April 15, 2022
Second Quarter Estimated Tax Payment DueJune 15, 2021June 15, 2022
Third Quarter Estimated Tax Payment DueSeptember 15, 2021September 15, 2022
Fourth Quarter Estimated Tax Payment DueJanuary 15, 2022*January 15, 2023*
Receive Your 1099No later than January 31, 2022No later than January 31, 2023
File Your Tax ReturnMonday 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 DeadlineMonday October 17, 2022 (15th is a Saturday)Monday October 16, 2023 (15th is a Sunday)
*You can skip the final estimated tax payment if you file your tax return and pay your full balance due by February 1st.

Accounting Software

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

Do I have to charge sales taxes on lawn care?

It depends on the state. In some states, it can also vary based on whether you’re charging for services or products.

What is the lawn care tax code?

The business activity code for landscaping services is 561730.

Conclusion

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.

Sponsored Links:

Leave a Comment

All comments are public and may be posted with or without edits. Don't include any sensitive information. This is not the IRS — I did not send you a letter or hold your refund.

Advertisements
Shop for Instacart
Shop for Instacart
Set your hours and earn on your own terms. Sign up today.
Set your hours and earn on your own terms. Sign up today. Show Less
Create Your LLC in Minutes
Create Your LLC in Minutes
Form your LLC in minutes starting at $49. Fast and simple tools to help you figure out each step of the process.
Form your LLC in minutes starting at $49. Fast and simple tools to help you figure out each step of the process. Show Less
File Your Tax Return
File Your Tax Return
Start for free.
Start for free. Show Less
Ask a Tax Expert Now
Ask a Tax Expert Now
Talk to a Tax expert online now. Describe your issue. Chat 1:1 with an expert. Save time and money.
Talk to a Tax expert online now. Describe your issue. Chat 1:1 with an expert. Save time and money. Show Less