Cleaning Business Tax Basics

Preparing for tax time with a calculator.
Photo credit:  ldprod

Taxes are a nearly unavoidable part of life, especially for business owners. Even in states that don’t require personal income taxes, many cities and counties in those states require tax registration as a form of licensing.

States, cities and counties also have a variety of special local taxes that you need to be aware of when you start a business. From a 1% tax on services in Jackson, MS  to Transit Self-employment taxes in a group of cities and counties in Oregon, it is a good idea to know about federal, state and local taxes, prepare for them and pay them in full.

Tax Lessons Learned

I know from bitter experience how ignorance about taxes can trip a new business owner up. I was pretty clueless about taxes when I started my first business.

That first year, I failed to hold sales tax and save for business tax. When tax time rolled around, I got an eye-popping tax bill for hundreds of dollars. I had no idea how to pay that amount.

I ended up calling the state tax agency and making payment arrangements. Since I was paying late, even more money was added to the tax bill in the form of penalties and interest. I even took a hit on my credit report over that tax bill.

That painful lesson taught me to think of tax money as separate from my earned business income and to prepare for taxes on a weekly basis.

Types of Business Taxes

There are a wide variety of business-related taxes at the federal, state and local levels. In some states, like Alaska, there are almost no business taxes collected by the state, counties or towns.

Other states, like Ohio tax businesses several different ways, plus there are taxes to the county and town that must be paid.

In nearly all states, new businesses must register with the state tax authority. Five states that don’t require tax registration are: Alaska, Florida, Iowa, North Carolina and South Carolina.

Common Taxes for self-employed house cleaners, who operate as sole proprietors and general partners, include:

Sales Tax

Sales Tax is a tax on customers. House cleaning businesses collect sales tax, hold it for the state and send the tax amount to the state every quarter (three months) or once a year.

It is important to hold sales tax and keep sales tax separate from other payments collected from customers. Set up a special tax savings account at your bank or credit union. Transfer sales tax into that account at the end of each week.

While it may be tempting to use collected sales tax for your business or personal expenses, don’t do it! That money belongs to the state, you are just holding it until tax filing time. Failure to pay sales taxes can have severe consequences, including fines, penalties and interest.

States Where House Cleaners Collect Sales Tax

Arkansas, Connecticut, District of Columbia, Kentucky, Minnesota, Nebraska,

New Jersey, New Mexico, New York, Ohio, Pennsylvania, South Dakota, Texas,

Washington and West Virginia

Use Tax

House cleaning businesses are required to pay use taxes on goods they purchased without paying sales tax.

Use tax comes into play when a business owner orders equipment or supplies online or through the mail from out of state and the seller does not charge sales tax for the goods.

Use tax is also due when a business owner buys items wholesale, pays no sales tax and uses the items for the business.

For example, a cleaning business buys fifty (50) microfiber cloths wholesale to sell to customers. The business sells thirty-five (35) cloths and uses the remaining fifteen (15) for cleaning customer homes. The business owes use tax on the fifteen (15) cloths used for business purposes.

Since use tax has to be declared on your state tax form, some businesses “forget” to list items that should trigger use tax. The problem with “forgetting” is if your business is ever audited by the state tax agency, painful reminders in the form of penalties and interest may jog your memory for months or years to come. Declare your purchases that require use tax and avoid tax drama.

State Taxes on Business Income

Sole proprietors and general partners generally pay taxes on the business income they earn through individual state income tax returns filed once a year.

Eight states have no income tax:

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas,

Washington and Wyoming

Be aware there are still various statewide business taxes in those some of those states. For example, Washington State taxes business income through the Business and Occupation (B&O) tax.

In other states, businesses have to reach a certain amount of sales before they are required to pay business taxes. In Nevada, a business has to have gross revenue of four million dollars before they are required to file a commerce tax return. In addition, counties and cities in no income tax states collect a variety of local taxes and fees.

Federal Partnership Tax

In many states, any general partnership that files Federal Partnership Taxes – Form 1065 must also file some form of partnership return.

In some states, partnership returns are information returns only. With information returns, no payment is required. In other states, payment is expected.

Get more information from a Certified Public Accountant (CPA) or qualified tax preparer to find out if your partnership must file those returns and whether any tax is due.

Special State Taxes For Partnerships:

Delaware: General partnerships are required to pay a flat annual tax of $250 to the state.

Georgia: General Partnerships are required to file an annual state tax return known as the Georgia Income Tax Return Form 700

Illinois: Partnerships are required to pay the the state’s personal property replacement tax at a rate of 1.5% of net income.

Kansas: Each general partner is must pay state income taxes based on their percentage of ownership

Maryland: Partnerships are required to pay tax on income earned by partners who live out of state

Oregon: Partnerships pay an annual Partnership Minimum Tax of $150.00

Vermont: Partnerships pay a Business Entity Tax of $250.00 minimum or a percentage of annual income

Self-Employment Tax

Federal Self-Employment tax covers payments into Social Security and Medicare. Employees generally pay half of these taxes and their employers pay the other half.

Self-employed persons must pay the entire amount.

With the federal government, self-employment tax kicks in at $400 or more of money earned as a self-employed worker. The federal self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare taxes (15.3% total).

Most states also require sole proprietors and general partners to pay estimated self-employment income taxes. State self-employment tax is often paid quarterly, similar to the way self-employment taxes are paid to the federal government.

State self-employment tax is a quarterly prepayment of state income tax. Many states will issue payment vouchers (like the one shown below) that must be used every few months to pay a portion of the state income tax.

State quarterly estimated tax voucher example.

If you fail to pay any state estimated tax, don’t pay enough estimated tax or pay late, penalties, fees and interest could result. Your accountant or qualified tax preparer can help you with state estimated income tax in your state.

States With No Self-Employment Tax

Alaska, Florida, Nevada, Tennessee, Texas, Utah, Washington and Wyoming

Local Business Taxes

County Taxes

Nearly every county in which your business operates will tax your business in some way. In some states, county tax is bundled with state tax, so you pay both at the same time.

In other states, counties collect business tax on their own once a year. Your county clerk’s office can give you more information about county taxes and when they are due.

City Tax

Many cities require tax registration as a form of licensing. In addition, many cities and towns collect sales and business tax. Your city or town clerk’s office can give you more information about city/town taxes and when they are due.

Employment Tax And Withholding

In all US states, employers must withhold federal, state, and payroll taxes from employees’ wages. If you hire a helper for your business, you are responsible for withholding employment tax. Get more information about employment tax and withholding by contacting your state tax agency or your accountant.

Get A Handle On Your Taxes

Taxes may not be the fun or exciting part of starting your new business, but it is important you understand them. Since you must deal with federal, state and local taxes on your cleaning business, it is a good idea to get the information you need.

What I learned from my first business tax fiasco years ago is that preparation is key to handling your taxes. Without preparation, it is easy to lose track of your taxes. Without preparation, you could fall into the trap of thinking of tax money as just part of your earnings, frittering it away and then scrambling at tax time to come up with the money for your tax bill.

First, learn about the taxes due in your state, county and town. Every state, county and city has online resources that explain which taxes are collected locally. Some states, like North Carolina, have excellent tax specialists just a phone call away.

In addition, many state tax agencies hold in-person tax seminars in cities and large towns. Ask questions about local taxes at your county or city clerk’s office.

The US Small Business Administration (SBA) manages a national network of Small Business Development Centers (SBDC) that provide free or low cost help with all parts of starting your business, including taxes. Find a SBDC near you.

Another, more expensive option is to pay your accountant for one hour or more of his or her time and ask questions about federal, state and local taxes. Spend at least half of that time with your accountant learning more about federal estimated self-employment taxes.

Two blue cancelled check files.Then move on to practical tax preparation. Set aside business tax and self-employment taxes on a weekly basis. Organize your paper business receipts in a check folder or envelopes by month. 

If you are more comfortable online, use accounting software to keep track of your expenses and taxes.  Use your phone to take photos of all your receipts or scan them daily.  File the digital records on your computer or a thumb drive (also known as a USB drive) for safe storage.

Create a bank or credit union account to hold your tax funds and transfer your tax funds into that account every single week. When your tax bill arrives, pay your taxes on time and in full.

Finally, breathe a sigh of relief…until the next tax payment is due.

Cleaning Business Start-up Basics

Use this full map of US state and city laws to help you:

  • Apply for a business name
  • Get a business license
  • Register to pay taxes

Just click on the map to find your state and get started.

USA map of states.

Are business taxes scary for you? How have you learned to deal with taxes?  Share your business tax learning curve in the comments below. ⬇︎

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8 Comments

  1. Mary Lou Nemione says:

    I lease a car. Can I dedcut actual expenses. I drive from my home to my clients home.

    1. Hi Mary Lou,

      You should be able to deduct most of your car expenses. Those would include the cost of the lease, car maintenance, insurance, gas, parking and licensing. It is important for you to keep careful records of all your expenses. Pay for all of your car expenses with your business checking account or a dedicated business credit card. File all of your leasing, maintenance and licensing receipts by month.

      Keep a log of your mileage from your home to your customers homes. Also keep a log of your mileage anytime you shop for supplies, go to meetings or go anywhere on business. Total your mileage monthly. Mileage logs can be found at any office supply store like Office Depot or Amazon. It takes a bit of time to develop the habit of writing down your beginning and ending mileage, but it so worth it at tax time.

      Finally, talk to your tax preparer about your deductions. He or she should be able to tell you exactly what you need to claim legal deductions for your city, state and federal taxes.

  2. Sharon Anderson says:

    Hello as a sole proprietor house cleaner in the state of Alabama what taxes will I have to pay just opened business a couple of months ago.

    1. Hi Sharon,

      You will find information about taxes a sole proprietor in the State of Alabama has to pay on the Alabama Cleaning Business Start-up Laws page. There is a section on that page called Business Tax Registration that will link you to state tax information. It is also a good idea to contact the county clerk about any taxes that might be due in your local county.

      Good luck with your new business, Sharon!

  3. Hi Judith,

    I have a cleaning business in Texas. I am thinking about hiring employees to help with the work load. Should I have each employee fill out a W9 and provide them with a 1099 at the end of the year?

    1. Hi Daytona,

      Each worker that fills out an IRS Form W-9 and receives an IRS Form 1099 from you is an independent contractor, not an employee by law.

      Daytona, the difference comes down to control. With employees you have more control over their work and how they interact with your customers. With independent contractors, you have far less control. You have to pay for more control over employees by contributing to taxes, worker’s comp insurance and paying overtime, etc.

      There are pros and cons for your business in using employees vs. contractors. An article that explains the difference can be found here. Only you can make the decision about whether to accept the trade-offs that come with independent contractors vs. employees.

  4. hi , i want to start a parking lot litter clean up business. what kind of business license i would need in ga i am very confused. if u can help.

    1. Hi Johnny,
      Information about business licenses can be found at the State Start-up Laws page. Just click on your state and you will find out more about registering a business name, getting a business license and registering for taxes in your state.

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