How Much Should You Save For Taxes For Your Lawn Care Business?

As a lawn care business owner, you're undoubtedly passionate about keeping lawns lush and green. However, there's another green you need to keep in mind – your taxes. Understanding how much to save for taxes is crucial for the financial health of your business. In this blog post, we'll delve into this topic and provide you with some valuable insights.

How Much Should You Save for Taxes?

One of the most common questions among small business owners, including those in the lawn care industry, is how much to set aside for taxes. The simple answer is 15-20% of all gross receipts that come in for your company. This rule of thumb can help you avoid last-minute financial stress when tax season arrives.

Let's break down this percentage and see how it works in practice.

Example Scenario:

Imagine your lawn care business has gross receipts of $100,000 for the year. Using the 20% guideline, you would set aside $20,000 for taxes.

However, here's an important caveat: this 20% rule assumes you don't have a good bookkeeper and don't meet quarterly with your CPA (Certified Public Accountant). If you do have a reliable bookkeeping system in place and maintain regular meetings with your CPA, you may find that you don't need to set aside the full 20%. Nevertheless, it's still a prudent practice to save this amount initially to be on the safe side.

Understanding the Calculation

Let's take a closer look at the example mentioned earlier:

Gross Receipts: $100,000
Taxes to Save (20%): $20,000
Business Expenses: $40,000
Now, deduct your expenses from your gross receipts:

$100,000 (Gross Receipts) - $40,000 (Expenses) = $60,000

This $60,000 represents the income that is subject to taxation. So, if you're setting aside $20,000 for taxes and your actual tax liability ends up being lower, you'll have extra funds left over for your business or additional savings.

Why Save for Taxes?

Saving for taxes is essential for several reasons:

Avoid Penalties: Failing to pay your taxes on time can result in hefty penalties and interest charges. By saving in advance, you can ensure you have the necessary funds when the tax bill comes due.

Smooth Cash Flow: Setting aside a portion of your revenue for taxes throughout the year helps you maintain a steady cash flow, preventing financial stress when the tax deadline approaches.

Invest in Growth: If you don’t end up needing the entirety of your tax reserve, it allows you to invest some of the remaining funds into your business in order to grow, whether that means purchasing new equipment, expanding your services, or hiring additional staff.

In the world of lawn care business ownership, financial responsibility is just as important as keeping those lawns pristine. By adhering to the 15-20% rule and saving a portion of your gross receipts for taxes, you'll be better prepared to handle your tax obligations without compromising your business's financial health. Remember that working with a professional bookkeeper and meeting with your CPA regularly can help you fine-tune your tax-saving strategy and ensure your business's long-term success.

Resources: 
https://cyclecpa.com/ (use code "Brian" to save $200 when you sign up)