Cleaning houses can indeed be a chore, but one that can be incredibly rewarding, especially when someone pays you to do it. And while no one likes getting into the nitty-gritty of taxes, there are more than a few valid tax deductions that cleaners can claim as part of their ordinary and necessary expenses.
Most professionals in the cleaning industry are classified as self-employed. Unlike traditional workers, self-employed professionals don’t have taxes withheld from their paychecks.
If you use your own car to go from worksite to worksite, then it can be a good source for a tax deduction. Before you start looking, you have to choose between two methods of deduction: the actual expenses method or the standard mileage method.
Method 1: The Standard Mileage Rate
The standard mileage method combines a variety of common car-related expenses into one single rate per mile. Of the two methods, this one is simpler. You track your business mileage and multiply the total number by the rate set by the IRS for that tax year ($0.575 per mile for 2015). This includes the cost of:
- Lease payments
- Maintenance and repairs (e.g. oil, tires, etc.)
- Vehicle registration
Since this rate includes these expenses, you cannot separately deduct them. Also, it should go without saying, but you can only deduct the business usage of your car. Here’s an example:
You own a car and drove a total of 8,000 miles for the year. 5,000 of those miles were driven from jobsite to jobsite and are thus deductible. Because you can only deduct the business use of your car, you can only deduct the rate based on those 5,000 miles. That would be 5,000 x 57.5¢, which equals $2,875.00.
An important note: If you’ve used the actual costs method for this car in a prior year (see below), you are not allowed to switch back to the standard mileage method. There are also a few other cases where you cannot use it: If you aren’t the owner or lessee of the car, or if you use five or more cars at the same time.
Method 2: The Actual Costs Method
True to its name, the actual costs method is meant to track every deductible business cost you have related to your car. This includes gasoline, insurance, maintenance, depreciation, lease payments and more. This often means a lot of receipts to track, whether you do so manually or with expense-tracking software like QuickBooks.
One thing you’ll also have to track is depreciation. Depreciation is when you apply portions of a single expense over a prolonged period of time. For example, say you buy a $12,000 car. Your car doesn’t provide all its value in the first year, because you’ll own it for longer than that. It provides you value for the entire time you have it, which means you’ll have to manually account for its depreciation.
The easiest way to calculate your depreciation for the year is using what is known as the “straight-line method.” This is the total cost divided by the number of years. So if you depreciate a $12,000 car over seven years (the number of years the IRS has set for car depreciation), that’s $12,000 / 7 = $1,714 per year depreciation expense. There are also other methods, like the 200% declining balance or 150% declining balance, but the IRS generally prefers the straight-line method.
And one more note: Once you use the actual costs method, you will not be allowed to use the standard mileage rate the following tax year.
Sound confusing? It can be. That’s why most people decide to use the standard mileage rate.
Parking and Tolls
As a cleaning professional, you can deduct parking fees and tolls associated with business visits. For example, if you’re cleaning a client’s house and have to pay for parking, you can expense the parking. But if you’re taking a break for lunch by yourself, you cannot expense the parking, since it is not business-related.
If you travel from jobsite to jobsite via bus or train, you’re in luck, as the cost of public transportation is deductible. But you must, however, follow the same guidelines as car-related expenses. That is, you can’t deduct your commute to or from home.
Tax Deductible Costs of Doing Business
You can deduct any materials you use to market your business. This includes not only the branded promotional items themselves, but also the cost of hiring someone to design and make them for you.
Just remember that “advertising” doesn’t apply to things like gifts, holiday party fare or anything that isn’t branded.
The cost of insurance premiums related to running your business is entirely deductible. This can include contractor general liability insurance, property insurance and others.
This doesn’t include your personal health, auto or disability insurance, however.
Cellular Phone Service
If you use your personal phone for business purpose, that portion is generally deductible. To do this, multiply your phone’s monthly cost by the percentage of time you use it for business purposes.
For example, let’s say you pay $60 a month and use your phone for business purposes 50% of the time. This comes out to $60 x 0.5 = $30 per month. Multiply that by 12, and you’ll have the annual business expense of your phone. In this example, you could claim a $360 deduction for business cell phone use.
Health Insurance Tax Deduction
You can deduct the costs of your personal health insurance premiums as a self-employed person as long as you meet certain criteria:
- Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.
- You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction.
- You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.
Any costs for normal replaceable supplies that you use in the course of your work can be deducted. For cleaners and housekeepers, this can include cleaning supplies like solvents, rags, gloves and more.
Claiming legitimate deductions on your annual tax return can get messy at times, but it doesn’t have to be. Keep your taxes neat and tidy by tracking all of your business expenses now so you’ll be ready for tax-filing season. To make things easier, QuickBooks can help you track all of your expenses and automatically classify them as deductions, allowing you to maximize your tax return, save time and avoid some headaches.