January 31, 2018
As a driving school owner, do you dread tax season? Well, you don’t have to if you follow my six driving school tax tips.
By doing so, you’ll lower your tax bill. Then, you can put that money in the bank or use it to grow your business. The choice is yours.
In the past, I always waited until the last minute to file taxes. Now, I push my team to have our previous year’s books done by January 20 and taxes filed by March 1.
You’ll find a wealth of information that you can easily apply to your driving school when it’s time to pay Uncle Sam.
Driving school tax tips: #1 – Start NOW
Tax season happens every year like clockwork, but most driving school owners wait until March or April. Then, they have to scramble and rush through taxes. I treated tax season this way for many years until the proverbial light bulb went off.
Now, I follow my own driving school tax tips to focus on legitimate tax strategies. The end result is that I lower my bill and lessen the sting.
Start preparing in January by pulling all documents, receipts, and invoices for tax filing. Before you meet with your accountant, it’s important to understand any tax changes that may impact your business.
Driving school tax tips: #2 – Get your books in order
I’ve seen it time and time again. Driving school owners are great at teaching, but not so much at managing their books. Be honest. On a scale of 1-10, how organized and accurate are your books?
If your books are not accurate, organized and up-too-date, you could be missing expenses and deductions that could lower your annual tax bill. For example, are you familiar with the deductible dozen? You should be able to easily track these expenses and save money on your taxes.
If you can afford it, I recommend hiring a bookkeeper. However, if hiring a bookkeeper is not an option for your driving school, there are more affordable tools available to help make bookkeeping not so tiresome and cumbersome.
Accurate and reliable bookkeeping data is like gold. Plus, it could lower your tax bill. Of all my driving school tax tips, this particular one could put more money in the bank.
Driving school tax tips: #3 – Become an S-Corporation
Most driving schools are not S-Corporations. In fact, most owners aren’t even familiar with S-Corporations. So exactly, what is one and how can it save you money?
As posted on the IRS website…
S-corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S- corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
Benefits of S-Corporations
According to “The 10 Best Tax-Saving Secrets” by Mark Kohler…
If you’re operating as a sole proprietor or an LLC and creating ordinary income from operations (i.e. sales of services or products), all of your net income will be subject to FICA/SE tax. S-Corp allows owners to take reasonable payroll wages through a W-2 that escapes the SE Tax AND ACA tax on the net.
Basically… the business owner takes a good portion of their profit as net income under the K-1. The beauty of this strategy is the business owner only pays SE tax on their payroll and not on the flow-through income from the profit.
This may be my most complicated of my driving school tax tips, but it decreases your tax bill substantially.
Driving school tax tips: #4 – Hire family members
Did you know that hiring family members to work at your driving school is actually a powerful tax strategy? According to Mark Kohler, “Many business owners forget some of their most affordable labor is sitting right across from them at the dinner table!”
The true power of this tax strategy includes the following benefits.
- Save on taxes
- Help children become self-reliant
- Teach small business and entrepreneurship skills
- Instill the concept of a job well done
- Save money in the business by hiring WITHIN the family
- Teach them how to complete a hard day’s work
- And again…SAVE TAXES!!
Driving school owners have two tax-saving options when hiring family members. You can hire children under the age of 18 or relatives 18 and older.
Children under the age of 18
Did you know that you don’t have to withhold any income taxes or payroll taxes if you hire your age 17 and under children? This also applies to workers’ comp, as well as state and federal unemployment insurance. This ONLY applies to your own children and dependents under age 18.
Why is this? The government and insurance carriers assume your children won’t sue you if they are hurt on the job.
Relatives age 18 and over
If you hire relatives to work at your driving school, they won’t pay taxes if they earn less than $6,300 annually. You can hire them as an employee (W-2) or as a subcontractor (1099).
There are other options, so be sure to read more here. Of all my driving school tax tips, this one is the most overlooked.
Driving school tax tips: #5 – Maximize your deductions
The trick to knowing how to maximize deductions and tax write-offs is to know that they actually exist. The IRS does not publish a master list, but tax pros like Mark Kohler can come to the rescue like a knight in shining armor.
When your driving school maximizes all possible deductions, you can literally save thousands of dollars. Over the course of several years, the savings really add up.
All driving school owners should keep accurate records. Think of a business purpose for each and every expense.
List of business deductions
For a comprehensive list of business deductions, click here. Then, begin thinking like a tax accountant and figure out what you can write-off. Finally, at the end of the year, comb over all of your expenses (preferably with a tax accountant) and watch the savings roll in.
Why give your money to Uncle Sam when you can use the savings to grow your business? Of all my driving school tax tips, this one might be the most tedious, but it can pay off big time.
Driving school tax tips: #6 – Send out those W-2’s and 1099’s
In 2018, the deadline for sending out your driving school’s W-2’s and 1099’s is January 31. Driving school owners must make every effort to meet the deadline.
As noted by The Balance, the IRS has increased penalties for the following.
- Failing to file the correct forms by the due date
- Intentional disregard of filing requirements
- Failure to furnish W-2s to employees.
To avoid any possible penalties, all driving school owners must follow the tax laws to the “T” and meet all deadlines. IRS penalties can rack up in the thousands of dollars. As posted by Entrepreneur,
Many business owners simply guess as to what the rules are and oftentimes get exasperated and just give up choosing to file nothing at all. This can be a dangerous result as the penalties can add up quickly.
In review: Driving school tax tips
Tax time doesn’t have to be a burden. With proper planning, careful examination of all expenses and deductions, plus adherence of tax laws, it can go smooth as silk and save you tons of money. Start with these tips.
- Start now
- Get your books in order
- Become an S-Corporation
- Hire family members
- Maximize your deductions
- Send out all W2s and 1099s on time