Thank you for taking the time to read this important report: 7 Bookkeeping and Tax Tips for Paint Contractors (for a PDF version of this ebook, click here).
My goal is to ensure you are aware of the biggest opportunities for paint contractors to save money from a bookkeeping and tax perspective. My hope is that you incorporate this knowledge into your painting business so you can earn more and know your records are in order.
I have seen the good, the bad, and the ugly when it comes to painting contractor bookkeeping. When I take a new client, it can be chaotic. However, the good news is, within a short period of time, I am able to get things back on track again.
I serve painting contractors exclusively as their bookkeeper and tax adviser. If, after reading this report, you feel you need help applying the recommended solutions, I encourage you to make an appointment with me to discuss your situation. I offer a free, 30-minute consultation to painting contractors to discover how they can move beyond chaos and restore order to their business.
To schedule your free consultation, visit www.bookkeepingforpainters.com/contact. I offer a limited number of free consultations so that I may focus on my current clients. So take me up on this offer now. I am a bookkeeper, not a pushy sales person. I will shoot straight with you about your situation and if we decide to move forward, then that is fine. If not, that is fine too.
Tip #1: Have a Recorded and Monitored Budget
The number one difference between an excellent and average performing painting contractor is the use of a budget. Although this claim might seem outrageous, let me assure you that the top 5% in the industry use budgets.
Above-average performing paint contractors don't just have a budget, they actively incorporate their budget into their bookkeeping and monitor their finances to ensure they reach their goals outlined in their budget. Top performing paint contractors take it one step further and use JOB COSTING. Job costing is basically just a budget for a specific job. These top performing paint contractors often use their client estimates as their budget and actively track costs per job-site to determine profitability per job-site.
If you need to get set-up with a budget in your bookkeeping software, you can contact me for a free consultation.
Tip #2: Take Advantage of the Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) rewards businesses for employing certain targeted groups that have a high unemployment rate or special employment needs. This tax credit can save your business 20-40% of wages paid out to qualifying individuals in their first year of employment. You can save up to $9,600 on one new hire per year. For example, your painting business hires a military veteran that has not had a job in 6 months. You pay the newly-hired, veteran $12 an hour, and the veteran works over half the tax year (960 hours). Your business would qualify for a $4,608 tax credit, thus saving 40% of the wages paid to that new hire.
In order for your business to take advantage of this outstanding, money-saving tax credit, take the following 5 steps:
1. Ensure all your new-hires fill out Form 8850 "Pre-Screening Notice and Certification Request for the Work Opportunity Credit" following the Instructions for Form 8850. This form will help you identify individuals in the "targeted groups" who are eligible for the tax credit. The new-hire must fill out the page 1 of Form 8850 on the day the job offer is made. Complete page 2 after the individual is hired.
3. Submit the forms to your state workforce agency within 28 days. To determine your state workforce agency process, download this PDF.
4. Wait for a final determination from your state workforce agency.
5. Once you receive approval from your state workforce agency, you can file your tax return with Form 5884 and Form 3800 to claim your tax credit. Your tax preparer or tax accountant can take care of this step for you. Just ensure you tell them and give them the information needed.
This credit not only saves you money, but allows find motivated employees who might need that second chance. Legislation passed in December 2015 will allow employers to claim this credit through December 2019. Visit https://www.doleta.gov/wotc for full information on the work opportunity tax credit.
If you need further information on this topic, feel free to contact me.
Tip #3: Take Advantage of the Home Office Deduction
As a painting contractor, you are likely conducting most of your business outside of your home (conducting estimates, supervising job-sites, etc). However you can still claim the home office deduction if you are using an area in your home for your business. Claiming a home office deduction can allow you to deduct a percentage of utilities, mortgage interest, home insurance, and property taxes on Form 8829, thus reducing your tax liability. This can easily save you hundreds of dollars in a single tax year. However you must ensure you are following the IRS guidelines in case of an audit.
To determine if you should claim the home office expense, ask yourself if your home office (or designated work area) is used EXCLUSIVELY AND REGULARLY for your painting business. Exclusively means you ONLY use said area for working on your painting business. Some people make the mistake of using their home office for an another purpose, thus preventing them from taking the home office deduction. To meet the regular use requirement, using the home office at least bi-weekly should suffice. Note: your "home office" does not have to be an entire room. It can be just a corner of a room. This may help you designate a place for exclusive use for your business to meet the exclusive use test.
The next requirement your home office must meet is the "principal place of business" test. Most likely, as a paint contractor, you will be on job-sites for a considerable amount of time. However, the IRS gives a provision, allowing an individual to meet the "principal place of business" test if the individual uses the office for administrative or management activities. As a painting business owner, you'll likely be doing the following types of tasks in your home office which will help you meet this test: entering payroll, ordering supplies, completing estimates for clients, job-site planning, scheduling appointments.
Now that you have determined you are eligible for the home office deduction, you can make the calculation and complete the necessary form. If you do your own taxes you can use Form 8829 and the Instructions for Form 8829 to do this. If you have a tax preparer or CPA take care of it, ensure they have the following information to calculate the deduction:
1. Square footage of your home and your home office.
2. Total mortgage interest.
3. Total real estate taxes.
4. Home insurance.
5. Repairs and maintenance.
6. Utility costs.
Many paint contractors fail to take this deduction, which is unfortunate. Some are unaware of the deduction and others believe the are not allowed to. This is not the case! Just ensure you follow the guidelines I've set out. If you are still not sure about the home office deduction, you can contact me for a free consultation.
Tip #4: Deduct the Purchase of Your Paint Business Vehicle
For the current tax year (2016), the PATH Act and Section 179 deductions are still in effect; possibly not for long. For you, as a paint business owner, this means you can purchase a vehicle for your paint business and fully deduct the cost on your taxes, thereby savings hundreds of dollars on the purchase of a work vehicle. There are a few guidelines you must follow in order to take the full deduction in the year of purchase.
First of all, you must choose a vehicle that qualifies for a full deduction. In general, vehicles that are not likely to be used for personal purposes are qualified for full deduction. To qualify for a full section 179 deduction the vehicle must meet one of the following descriptions:
--Vehicles with a fully-enclosed cargo area, with no seating behind the driver’s seat, and no body section protruding more than 30 inches ahead of the windshield (AKA: a cargo van).
--Heavy vehicles with a cargo area with at least six feet in length and not accessible from passenger compartment. For example, a pickup truck with full-sized cargo beds would qualify.
--Vehicles that seat more than 9 passengers behind the driver’s seat. For example, a large van.
So for a paint contractor, a cargo van or extended-bed truck would likely suit your needs best. Most paint contractors go with a enclosed cargo area, or cargo van, for security reasons. You can finance or buy a used cargo van for about $15,000. With the section 179 deduction and assuming a 28% tax bracket, the actual cost of the van would be 10,800 (15,000 - (15,000 x .28)), thus saving you $4,200!
You should note, if you you finance the purchase with a loan, you might actually profit from the purchase. Using the same example, say you buy the cargo van in July and monthly payments on your vehicle loan are $400. By the end of the year, you would have spent $2,400 (400 x 6) towards your vehicle loan. However, on your taxes you would save $4,200, thus making a profit of $1,800 ($4,200 - 2,400)!
Note: the vehicle can be new or used. As long as it’s new to you. Additionally, you must use the vehicle at least 50% towards your business to qualify for the section 179 deduction. Ideally, you would use the vehicle 100% for your business, so you can claim the full deduction. Any amount below 100% and above 50% reduces your deduction by the applicable percentage. Staying with the cargo van example, if you only use the cargo van 70% of the time for your paint business and 30% of the time for your personal use, only $10,500 ($15,000 x .70) would be section 179 deductible.
In order to ensure your vehicle purchase gets you the biggest tax savings, ensure you consult a tax advisor or schedule your free consultation with me here.
Tip #5: Establish Sound Financial Controls
Establishing controls is crucial in protecting your painting business from embezzlement. Unfortunately, paint businesses often suffer from an employee stealing company funds. If you need proof read this article. This often occurs when one person has too much control over a business's day-to-day transactions.
For example, no one other than you should have access to the banking records whether online or paper. Have your company’s bank statements sent to your home address if you’re using snail mail or delivered to your PRIVATE email inbox if you receive them in electronic form.
Doesn’t that sound like a simple fix? It is! Apply this, along with the other financial controls I recommend, and you make it much more difficult for anyone to steal from you. However, even with these controls in place, there are more important things you need to consider as it relates to employee embezzlement.
That is a topic I do NOT want in writing as it gives thieves an understanding of what to be on the lookout for. If you like, please schedule your free consultation and I will discuss this with you in private.
Tip #6: Use a Bookkeeper Who Knows the Painting Business
As mentioned previously, your painting business is unique. 80% of bookkeeping is the same for any business whether it is a Painting business or an ice cream truck. But…the last 20% is what separates the good from the ugly.
Hire a bookkeeper who knows the nuances of the paint business. Hire a proven professional who knows what it takes for you to succeed. This is not the time to get cheap and try and cut costs. Surprisingly, getting this kind of dedicated help is reasonable and should actually become a profit center for you rather than a cash drain.
Tip #7: Go Paperless with a Sound Bookkeeping Process
Going paperless with a sound bookkeeping process saves you time and worry. With current technology, it is possible to go paperless and gain incredible insight into your painting business. Here are the steps to move your business towards a sound bookkeeping system that is paperless:
1. Sign-up for Quickbooks Online (QBO) or Xero. QBO and Xero bookkeeping software allow information can be stored in the cloud protected byrobust, bank-level encryption and accessible anytime, anywhere.
2. Track your employees' hours on job-sites with TSheets and save countless hours of manual payroll entry. TSheets also seamlessly integrates with QBO.
3. Track receipts, bills, and other documents with Hubdoc. Hubdoc imports all your documents, categorizes, and exports to your documents to your bookkeeping software (QBO or Xero). All you need to do is take a picture of your receipt (or bill) with your phone and Hubdoc does the rest.
4. Have a knowledgeable bookkeeper manage your process, develop financial statements and provide you valuable insight into your painting business.
Tip #8: Consider Providing Health Benefits to Employees to Save Money
Did you know you could save money in your business by providing health benefits. Here's the run down from the folks at ZaneBenefits.com:
"Health benefits are an essential component of any employee compensation package—but you wouldn’t know that by looking at how small businesses handle them.
Because traditional group benefits are becoming increasingly expensive, complex, and one-size-fits-all, fewer than half of small businesses currently offer health benefits to their employees.
But traditional group policies aren’t the only way to offer health benefits. As of January 2017, there’s a new option: the qualified small employer health reimbursement arrangement (QSEHRA), or Small Business HRA.
With a QSEHRA, small businesses can reimburse employees tax-free for their medical expenses, including personal insurance premiums."
I highly recommend you take a look at Take Command Health's QSEHRA platform if you are interested.
In order to ensure your painting business is set up correctly, you need a Chart of Accounts tailored for your business. You can download a Chart of Accounts template that is generally suited for a painting contractor. Depending on your unique situation, you may need to tweak the accounts. However this is a good start.
If you have not seen my videos on how to set up your painting business and do estimates in Quickbooks Online Plus, see the videos below.
Now, I would like the opportunity to discuss your situation and how I can serve and help guide you toward financial prosperity. If you’d like to take me up on this offer, please use this link to schedule your free 30-minute consultation.
Here’s the deal: I only serve a select handful of paint contractors. I offer a real, hands-on experience, which limits the number of paint contractors I choose to work with.
If you don’t contact me, that’s totally fine. I understand. But do yourself a favor and get a qualified bookkeeper to handle your books. Don’t make the same mistakes I’ve seen so many others make! They are unnecessary and it kills me to see paint contractors like you missing out on the benefits that come from getting financial control of your business.
I hope this has been helpful and inspires you to take action.