Many plumbing company owners strike out on their own in order to maximize their revenue. And while limitless earning potential is wonderful, what really matters is not how much you can make, but how much you can keep. Tax time devours cash stores for most businesses, leaving owners feeling a bit sour about their otherwise successful year.
But if you’re not watching your tax-deductible plumbing business expenses, you could literally be flushing money down the drain (groan if you must, but how could we not?). In this guide, I’ll cover plumbing business expenses that you should be writing off to reduce your taxable income and boost your profitability.
Deductible Expenses for Plumbing Businesses
Plumbing companies should be tracking their expenses and using them to lower their taxable income at the end of the year. The following are some of the most common expenses that plumbing businesses incur.
Labor costs.
Labor costs are typically the largest category of expenses that a plumbing contractor will shell out. Whether they’re a one-person show or a larger outfit, they have to pay for the help they need throughout the year, and these expenses are deductible.
For instance, you can deduct employee salary packages and hourly rates, including those paid to full- and part-time employees, office staff, and service technicians, as well as the cost of their benefits packages.
Similarly, subcontractor pay is deductible. This includes contractors, engineers, and other third-party business professionals paid by the plumbing company for work, consulting, or expertise.
Equipment purchases and maintenance.
Any money spent on equipment for the business is tax deductible, including the purchase price of hand tools, power tools, and any parts or accessories that accompany them. Also, deduct smaller supplies such as drill bits, saw blades, plumbing parts, adhesives, pipe, and other items purchased for the business or a project.
It’s also worth noting that you don’t have to buy to take advantage of these benefits. The cost of renting equipment is also deductible, allowing plumbing companies to protect their profits by writing off rental fees for equipment they use too infrequently to justify purchase.
And don’t forget vehicle expenses. The cost of purchasing, leasing, maintaining, or repairing the vehicles used exclusively for business purposes is tax deductible. I always found leasing to be the best option for my business as it was the simplest to deduct, but once I was better at tracking mileage and keeping maintenance records, itemized deductions served me better — I’ll chalk that up to a learning curve.
Office-related expenses.
Just about everything you use to keep the back end of your business running and on track is an expense worth deducting.
For example, if you bought a building for your business, the interest on the mortgage, the property taxes, the building’s depreciation, any insurance policies, and operating expenses (utilities, maintenance, and repairs) are tax deductible. If you rent your space, your payments are entirely deductible, as are any expenses paid to alter, repair, or maintain the building.
The same may apply if you have a home office. If 10% of your home is used as a home office for the business, you can deduct up to 10% of most of your home’s expenses.
Also, consider your office supplies and software fees. Any supplies you purchase for the office, such as pens, paper, forms, furniture, or other items are deductible. The same applies to any licensing fees paid to software companies, such as programs for scheduling, project management, accounting, and more.
Marketing and advertising costs.
Marketing and advertising expenses consume a large proportion of annual spending in some plumbing businesses. You can write off any money spent on online campaigns, website hosting, social media promotions, and content creation.
But it’s not just modern advertising methods that are deductible. The cost of local advertising efforts like printing flyers, running radio ads, and paying for TV spots can also be written off against the business’s taxable income.
Licensing and insurance fees.
Certain aspects of running a plumbing business are non-negotiable, such as obtaining (and maintaining) the right credentials and protecting yourself against liability. We’re talking about licensing and insurance.
Any fees incurred while obtaining or renewing any professional license (e.g., plumbing license, business license, or professional certification) used for the business are deductible, as are costs for any required ongoing classes, filing fees, renewal fees, and even copies. If the business pays for employees to get their licenses, those fees are deductible as well.
You can also deduct insurance premiums for any policies related to the business. Commercial vehicle insurance, inland marine insurance, workers’ compensation coverage, general liability insurance, property insurance protecting the business, and any other applicable policy premium can be subtracted from the business’s taxable income.
Tax-Saving Tips for Plumbing Businesses
While you should always consult a tax expert, it’s helpful for business owners to understand the legal, legitimate ways to save money come tax time. The following are some actionable tips to consider when filing.
Keep organized, accurate records.
Whether you keep receipts in a shoebox or use a digital accounting solution, one of the most challenging aspects of tax preparation is keeping your documents organized. This includes invoices, receipts, profit and loss statements, and more.
As one might expect, this is where many new contracting businesses go wrong (trust me, my own struggle was quite real). Luckily, today’s apps enable companies to track their records throughout the year, for accuracy’s sake (keep those hard copies, though). Even better, subscription fees for such apps are — you guessed it — tax deductible!
Utilize accounting software.
If your modern plumbing business or contracting firm isn’t using accounting software to manage finances and expenses, you are leaving money on the table. Not only do these programs help track accounts payable, accounts receivable, and expenses, but they also streamline the most common tasks and reduce the risk of human error.
Some of these programs may also include mobile apps that allow users to track and update expenses. Teams in the field can complete daily reports, log expenses, and attach them directly to the project, making the entire process faster and easier.
Consult a tax professional.
Your best source of tax-saving tips will always be your tax professional. The right tax expert will guide you through the filing process and ensure that you collect on every eligible deduction, leveraging lesser-known deductions to help your plumbing business hang on to its money.
Commonly Overlooked Tax Write-Offs
No one’s perfect, and your plumbing company may be missing out on some of the more obscure deductions. Keep an eye out for the following opportunities next tax season.
Mileage and travel expenses.
All mileage and travel expenses related to business operations are tax-deductible, so be sure to keep detailed records. This includes mileage on company vehicles, mileage for sales calls and inspections, and even airfare for industry conventions or trainings. If a project or convention requires a hotel stay, those fees are tax-deductible, as well.
But don’t just think about miles and tickets. Travel-related meals paid by the company, parking fees, tolls, and other expenses may also be tax deductible. And, if you’re taking a client out to a meal to discuss a project, that’s deductible as well.
Education and training programs.
One way to entice new employees and retain great help is to pay for education and training programs needed for their professional development. This shows that you value their contributions, helps the company perform better work with fewer callbacks, and provides an opportunity to deduct any trainings, seminars, or certifications against taxable income.
Eco-friendly upgrades or green initiatives.
Don’t forget: if your business installs or utilizes any eco-friendly upgrades, as in residential structures, those costs are deductible. For example, the Investment Tax Credit currently allows property owners to write off up to 30% of the cost of their new solar panel system against their taxable credit. This single deduction could make or break an eco-friendly plumbing company.
Tax filing fees.
Guess what? Any fees you pay to the federal government or state to file your taxes are, you guessed it, deductible. If you pay an accountant to file your taxes, their fees are deductible as well. A decent accountant will know this, but it’s important to stay on top of it, especially if you’ve switched to a new provider.
Owner’s salary.
This one can get a little tricky, but it’s especially important for new plumbing business owners to understand. If you’re a sole proprietor, your business’s income is taxed as your own. However, if you form an LLC or S-Corp, the owner can become an officer of the company and take a salary, which is deductible from the business’s taxable income.
Again, that’s complicated, so be sure to check with your accountant. But this can be a very handy way to reduce tax obligations for both the company and the owner.
Reduce Your Tax Liability by Knowing Your Deductions
While taxes are a certainty, you have some control over how much you pay. Studying these plumbing business expenses will reveal what details to track to reduce your annual taxable income. By staying on top of your licensing and insurance fees, vehicle and equipment expenses, office- and marketing-related costs, and commonly missed expenses, your company can significantly reduce its tax burden, helping you hold on to your earnings and fuel growth year after year.