Planning now could prevent a high tax bill later
Whether you’ve been an HVAC contractor for years or you’re just starting out, it’s never too early or too late to take a proactive approach to your taxes. No one wants to deal with taxes, especially when you’ve got the important business of running your company to take care of. But if you put off tax planning, you might be in for an unpleasant surprise next year.
HVAC contractors are already in an interesting position when it comes to sales, and your state may have unique rules. An accountant who specializes in the needs of small businesses can help guide you through the complications of the tax code, so partnering with a professional can help your bottom line. In the meantime, here are some issues to consider when it comes to taxes.
Service or Materials?
As an HVAC contractor, do you provide a service or sell a product? The answer is that you do both. but which one matters for taxes? The answer depends on your state and could be one or both. Some states treat contractors as resellers depending on the type of contract they use. This would mean you don’t pay sales tax when you purchase materials but would need to collect sales tax from your client instead. To make matters more complicated, those rules could be different for different types of jobs. It’s best to research the regulations for your state ahead of time or reach out to a professional for help.
Use the Right Contract
Depending on your state, the type of contract you use could impact the way you handle sales tax. Lump-sum contracts put all charges, including labor, materials and supplies, into a single price, while time-and-materials contracts are itemized with different charges for each item. If you qualify as a reseller in your state, you need to either add a line item for sales tax to your time-and-materials contract, or you need to factor it into a lump-sum contract.
Which Accounting Method?
For income tax reporting, it’s important to find the right accounting method for your business and for the contract. Is the contract short-term or long-term? Will it complete in the same tax year as it was started? All of these issues factor into how you will report the income, and the right plan can help reduce your tax bill.
We Can Help
At the Numbers House, we know you’re an HVAC expert, not a tax expert. And you don’t have to be. We can help you make a solid plan for your business taxes and put our knowledge to work for you. Contact us today at (865) 294-7300 or email us at firstname.lastname@example.org.