As the tax season approaches, everyone faces the task of organizing their finances and ensuring compliance with tax regulations. For businesses in the outdoor industry, this period can be particularly challenging due to the seasonal nature of your operations and the variety of income streams, from direct sales to service offerings. However, with careful planning and a strategic approach, you can navigate tax season efficiently and even uncover opportunities for savings.
1. Understand Your Tax Obligations
First and foremost, it is essential to have a clear understanding of your tax responsibilities. Depending on the structure of your business (whether it's a sole proprietorship, partnership, LLC, or corporation), your tax obligations will vary. Most businesses in the outdoor recreation industry are required to pay income tax, payroll tax, and sometimes sales tax. It is crucial to be well-informed about the specific tax regulations that apply to your business and the locations where you operate, as outdoor activities often span across different jurisdictions.
Identifying the structure of your business will not only determine your tax obligations but also set the deadline for submission. Partnerships, S-Corps, and LLCs taxed as partnerships are required to file by March 15th, while other business types have until April 15th to submit their taxes.
Pro Tip: Uncertain about your business structure? Refer to the EIN form provided by the IRS during your business registration process. This document will outline the specific tax form required for filing purposes.
2. Organize Your Financial Records
Effective record-keeping serves as the foundation for a seamless tax preparation process. It is imperative to keep all of your financial documents, such as income statements, expense receipts, payroll records, and bank statements, well-organized and easily accessible. Utilizing digital accounting software can be a valuable asset in maintaining the orderliness of your finances. By consistently keeping detailed records throughout the year, you can alleviate the time and stress associated with getting ready for tax season.
Many booking platforms, such as The Flybook, offer comprehensive reporting tools to help you access essential documents and data for your accountant meeting. Within The Flybook system, the go-to report for tax season is the Combined Accrual Report. Learn more about this report and how to pull reports for taxes here.
3. Maximize Deductions and Credits
As an outdoor recreation operator, you have access to a range of deductions and credits that can significantly lighten your tax load. Costs associated with equipment purchases, using vehicles for business purposes, maintaining facilities, marketing efforts, and employee training are all potential areas for deductions. Moreover, there are specific tax credits available for environmentally conscious businesses or those that hire veterans. To make sure you're capitalizing on all available deductions and credits for your business, it's wise to seek guidance from a tax professional.
4. Consider Depreciation
As an outdoor recreation business you likely have invested in significant assets like vehicles, equipment, and property. Understanding how to handle depreciation on these assets can lead to substantial tax savings. The IRS allows businesses to recover the costs of certain property over time through depreciation deductions. These deductions can be complex, so it's beneficial to work with a tax professional who can help you navigate the rules and maximize your benefits.
Here are some key assets commonly found in outdoor businesses that may be eligible for depreciation:
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Vehicles and Transportation Equipment: This includes vehicles used for business operations, such as shuttle buses for transporting clients to and from activity sites, ATVs, snowmobiles, boats, and other specialized transportation equipment.
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Buildings and Improvements: If you own the building from which your business operates, including any improvements made to leasehold properties. This can also include structures like cabins, lodges, or storage facilities.
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Equipment and Gear: This category encompasses a wide range of items, such as climbing equipment, fishing rods, bicycles, skis, snowboards, kayaks, canoes, and other gear that you rent out to clients or use in providing your services.
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Furniture and Fixtures: Office furniture, outdoor seating, lighting fixtures, and similar items used in your business operation or guest areas.
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Computer and Office Equipment: Computers, printers, POS systems, and other technology used for the administration and operation of your business.
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Land Improvements: These are improvements made directly to or added to land, such as landscaping, fencing, outdoor lighting, paths, and parking lots. Unlike land itself, which is not depreciable, these improvements can be depreciated.
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Software: Purchased or licensed software used in your business operations can often be depreciated, depending on the terms of purchase and use.
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Leasehold Improvements: If you lease your business space, any improvements you make to the property (with the lessor's approval) can typically be depreciated over the useful life of the improvements.
It's important to note that the rules for depreciation, including what can be depreciated and the methods used, can vary depending on specific circumstances and tax laws.
5. Stay Informed on Tax Law Changes
Tax laws and regulations can change from year to year, impacting your business's tax obligations and opportunities for savings. Stay informed about any changes in tax laws that could affect your outdoor recreation business. This can include adjustments to tax rates, deductions, and credits, as well as new reporting requirements.
Some significant changes from 2022 to 2023 that may impact your business:
- Business Meal Deductions
- The ability to deduct 100% of business meals provided by restaurants, which was available in 2022, has reverted back to the traditional 50% limit in 2023. Source
- The ability to deduct 100% of business meals provided by restaurants, which was available in 2022, has reverted back to the traditional 50% limit in 2023. Source
- Tax Inflation Adjustments
- The IRS announced annual inflation adjustments for tax year 2023, affecting more than 60 tax provisions, including tax rate schedules and other tax changes. These adjustments are designed to reflect changes in the cost of living. Source
- The IRS announced annual inflation adjustments for tax year 2023, affecting more than 60 tax provisions, including tax rate schedules and other tax changes. These adjustments are designed to reflect changes in the cost of living. Source
- Increased Section 179 Deduction Limits
- The Section 179 expense deduction limit increased to $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during 2023. This deduction is indexed to inflation and includes certain improvements to nonresidential qualified real property. Source
- The Section 179 expense deduction limit increased to $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during 2023. This deduction is indexed to inflation and includes certain improvements to nonresidential qualified real property. Source
- Bonus Depreciation Phase-down
- For eligible property placed in service after September 27, 2017, and before January 1, 2023, businesses could immediately deduct 100% of the cost. Starting in 2023, this bonus depreciation will be phased down over four years, starting at 80% in 2023. Source
- For eligible property placed in service after September 27, 2017, and before January 1, 2023, businesses could immediately deduct 100% of the cost. Starting in 2023, this bonus depreciation will be phased down over four years, starting at 80% in 2023. Source
- Qualified Business Income Deduction Thresholds
- The thresholds for the Qualified Business Income Deduction have been updated for 2023, with $182,100 for single and head-of-household filers and $364,200 for married taxpayers filing jointly. Source
- The thresholds for the Qualified Business Income Deduction have been updated for 2023, with $182,100 for single and head-of-household filers and $364,200 for married taxpayers filing jointly. Source
- Work Opportunity Tax Credit Extension
- The Work Opportunity Tax Credit has been extended through 2025, offering incentives for employers who hire long-term unemployed individuals. Source
- The Work Opportunity Tax Credit has been extended through 2025, offering incentives for employers who hire long-term unemployed individuals. Source
- Adjustments for Employee Health Insurance Expenses
- The dollar amount for average wages, relevant for determining eligibility for the small employer health insurance credit, has been updated to $30,700 for 2023. Source
- The dollar amount for average wages, relevant for determining eligibility for the small employer health insurance credit, has been updated to $30,700 for 2023. Source
- Employer-provided Transportation Fringe Benefits
- The maximum monthly limitation for transportation in a commuter highway vehicle and any transit pass has been updated to $300, as well as the monthly limitation for qualified parking. Source
- The maximum monthly limitation for transportation in a commuter highway vehicle and any transit pass has been updated to $300, as well as the monthly limitation for qualified parking. Source
- Changes in Sick Leave Reporting for the Self-employed
- The qualified sick and family leave credits under the Families First Coronavirus Response Act expired, and now a general business credit is available for employers with policies that provide paid family and medical leave. Source
- The qualified sick and family leave credits under the Families First Coronavirus Response Act expired, and now a general business credit is available for employers with policies that provide paid family and medical leave. Source
- Net Operating Losses (NOLs) Rules
- The rules for NOLs have seen changes, with losses no longer being able to be carried backward and the NOL deduction capped at 80% of taxable income.
Source
- The rules for NOLs have seen changes, with losses no longer being able to be carried backward and the NOL deduction capped at 80% of taxable income.
6. Work with a Tax Professional
Navigating the intricate web of tax laws and tackling the distinctive hurdles and possibilities that come with being an outdoor recreation business can be daunting. That's why teaming up with a proficient tax professional is not just advisable, but essential. A seasoned accountant or tax advisor well-versed in your industry can offer invaluable insights, ensure adherence to regulations, and devise strategies to minimize your tax burden.
Be proactive in discussing the specific recommendations with your tax professional. While they have your best interests in mind, they may not be familiar with all the nuances of your outdoor recreation business. Providing detailed information and specifics will help ensure you capitalize on every possible opportunity for savings.
7. Leverage Technology
Embrace the power of technology in 2024 to revolutionize your record-keeping process. Harness accounting and tax software to streamline financial management and tax preparation, automating tasks to minimize errors and save valuable time. Let automation be your ally in navigating the complexities of tax season efficiently and effectively.
As the tax season looms, businesses within the outdoor industry face a unique set of challenges and opportunities due to the seasonal nature of their operations and diverse income streams. However, with strategic planning and adherence to the comprehensive recommendations provided, you can navigate the complexities of tax preparation with confidence. From understanding tax obligations and maintaining meticulous financial records to maximizing deductions and staying abreast of tax law changes, each step is critical in ensuring compliance and optimizing potential savings. Additionally, leveraging professional advice and advanced technology can further streamline the process, enabling you to focus more on your passion for the outdoors and less on the intricacies of tax regulation.
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