Taxes and accounting for a cleaning business (US + CA)

Bookkeeping Basics

• Open a dedicated business bank account and credit card to keep all business transactions separate from personal ones, simplifying reconciliation at tax time.
• Record every invoice (for both residential and commercial clients) as income on the date received and log expenses like supplies or fuel immediately using accounting software like QuickBooks or Wave.
• Reconcile bank statements monthly to catch errors early. Retain receipts for at least three years in the US or six years in Canada as recommended by tax authorities.
• Track mileage for business-related vehicle use with a log noting the date, destination, and purpose, as significant driving between client sites is common.

Common Deductions

• Deduct the cost of cleaning supplies, uniforms, and equipment purchases if they qualify as ordinary business expenses under both US and Canadian tax rules.
• Claim vehicle expenses using either actual costs (e.g., gas and maintenance) or a standard mileage rate in the US, typically between 50 to 65 cents per mile depending on the tax year. In Canada, use the capital cost allowance on a declining balance basis for the portion of vehicle use for business purposes.
• Write off home office expenses for space used exclusively for business (such as scheduling and billing) if it meets size and usage criteria. In the US, the deduction is based on square footage, while Canada offers a simplified method.
• Deduct professional fees such as those for accounting services or liability insurance premiums. In Canada, you can include eligible input tax credits for GST paid on business supplies.

Sales Tax and GST/HST

• In the US, review state and local laws because cleaning services may be subject to sales tax in some areas but not others. Collect and remit sales tax only where applicable, often at rates between 5 and 10 percent.
• Register for a sales tax permit in states where required before charging clients and submit returns monthly or quarterly depending on your sales volume.
• In Canada, most cleaning services are subject to GST at 5 percent or HST in participating provinces, with combined rates up to 15 percent. Charge tax on invoices and remit net amounts after claiming credits on business purchases.
• File GST/HST returns annually if your revenue is below the small supplier threshold or quarterly if it exceeds that level, maintaining detailed records of taxable supplies for customers.

Quarterly Estimates

• In the US, make quarterly estimated tax payments to the IRS if you expect to owe more than 1000 dollars for the year. Due dates are in April, June, September, and January to cover self-employment tax and income tax on business profits.
• Use Form 1040-ES to calculate payments based on prior year liability or current year projections. Pay online to avoid underpayment penalties.
• In Canada, self-employed individuals may need to make instalment payments to the CRA for income tax and CPP contributions when prior year taxes exceeded 3000 dollars, with due dates in March, June, September, and December.
• Review payment amounts each quarter using your bookkeeping records. Adjust for seasonal fluctuations common in the cleaning industry, such as higher commercial contracts in certain months.

When to Incorporate

• Consider forming a corporation or LLC in the US when annual revenue exceeds approximately 100000 dollars or when liability risks increase, as incorporation can limit personal liability and allow certain tax advantages.
• Incorporation involves additional costs like annual filings and separate tax returns, so weigh the benefits against the simplicity of maintaining a sole proprietorship for smaller operations.
• In Canada, consider incorporation when income splitting is beneficial or when retaining earnings for growth is strategic, as corporate tax rates on the first 500000 dollars of active business income can be lower than personal tax rates in several provinces.
• Consult state or provincial registries for formation requirements. Corporations must maintain separate corporate minutes and resolutions, even for a single-owner cleaning business.

General information for cleaning business owners, not legal or financial advice.