From the blog 11 Tax Breaks for Thrift Stores
Operating a thrift store comes with the same responsibilities as any other retailer. You have to hire employees, source and manage inventory, market your business, and pay the bills that keep the store up and running.
Seasoned shop owners know this all too well; you may have even mastered the art of gaining customers to your thrift store. But there’s one opportunity that’s often overlooked: saving as much as possible on taxes.
“A regular retailer and for-profit resale store have the same tax deductions,” says Patricia T. Anderson, an accountant and Enrolled Agent based in Boca Raton, Florida.
However, in many cases, neither type of business owner takes full advantage of the tax breaks available to them. A recent QuickBooks survey found that 8% of small businesses don’t deduct any expenses on their tax forms. Meanwhile, another 36% said they “could make better use of tax deductions.”
While hiring a certified professional accountant can help clear up a lot of the confusion, you aren’t off the hook completely. As a thrift store owner, it pays to know which tax deductions you’re allowed to take each year. After all, the more expenses you write off, the lower your taxable income.
To get you started, here are several tax breaks available for thrift stores. Once you’re informed, you’ll be better prepared for the 2020 tax season – and you’ll be a better business owner because of it.
Note that these tax breaks are explained in further detail at IRS.gov. If you have any questions, you can refer to Publication 535 or consult your accountant.
1. Business License/Permit
To own and operate a thrift store, you may be required to acquire several things, including:
- Seller’s permit
- Business license
- Federal employer identification number (EIN)
- Any local business permits as required by the county clerk
It can be a headache to obtain all the appropriate documentation. Fortunately, the fees you incur with licenses and permits are eligible tax deductions.
The IRS says, “Some licenses and fees may have to be amortized.” Consult with your accountant to confirm exactly how to deduct these expenses.
2. Employee Wages
Under certain conditions, you can deduct wages as an expense each tax year.
To be clear, wages include hourly rates, salaries and any commissions you might give your top performers. If you hand out holiday bonuses, you can add those to the total deductions, as well.
3. Workers’ Compensation Insurance
Speaking of employees, are you required to carry workers’ compensation insurance to cover any accidents they may have? If you are, the premiums you pay for workers’ compensation are eligible tax deductions.
4. Promotional Materials
Advertising and marketing are key ways thrift stores make money. For instance, you might hire a graphic designer to create a distinctive logo or buy an ad in a local newspaper.
However you choose to market your thrift store, it will probably come at a price. The good news is you can write off these advertising expenses. The IRS says, “You generally can deduct reasonable advertising expenses that are directly related to your business activities.”
5. Automotive Expenses
As a thrift store owner, you likely put a lot of miles on your vehicle, driving to various flea markets, antique stores and auctions. Use these expenses to lower your taxable income. You can do this by tracking mileage and using the standard mileage rate (58 cents per mile for the 2019 tax year).
Or, those who use their car or truck exclusively for work can, instead, deduct total vehicle expenses accrued throughout the year. This includes lease payments, gas, oil changes, new tires, repairs, tune-ups, insurance and registration.
6. Travel Expenses
Are you itching to check out the antique mall three states away? Go for it! You can deduct travel expenses related to your thrift store business. This includes airfare, lodging, local transportation and even meals. “[You] could even deduct a large SUV or truck rental to pick up items,” adds Anderson.
Meals for you and/or any employee who travels with you are 50% deductible. “If you are eating with a business associate or customer and business is being discussed, you can deduct meals,” according to Anderson. So, hold onto those receipts – they’re worth more than you realize.
7. Office Supplies
You can write off a lot of your everyday office supplies.
Printer paper, ink cartridges, pens, paperclips, receipt paper and the like are all eligible business expenses. You can even count software subscriptions you use to run the business, such as your POS system, accounting software and employee-scheduling program.
8. Rent and Utilities
Running a brick-and-mortar store is not much different than owning a home. Even if you rent the storefront, tenants are responsible for certain utilities. Paying for heating and air conditioning may fall to you, as well as sewage and water expenses. You’ll also need internet services to hook up your payment processor and a telephone to take customer calls.
Lucky for you, all these expenses are deductible, including the monthly rent check you write to the landlord. The only caveat is these expenses cannot overlap with personal use. That may mean you have to buy a separate cellphone and cellphone plan to prevent any gray areas.
9. Start-up Costs
Brand new businesses get a special tax break – and for good reason. It’s too early to make much profit, yet you still have bills to pay and mouths to feed. That’s why the IRS lets you deduct up to $5,000 in start-up costs and $5,000 in organizational costs.
10. Credit Card Fees
Although some resale stores run on a cash-only basis, it’s not necessarily the best option. In fact, one of the ways thrift stores can stay competitive is by offering multiple forms of payment.
However, when you start accepting credit cards, you also start accepting the fees that come with them. Because these credit card convenience fees can quickly add up, be sure you deduct them as a business expense.
11. Cost of Goods Sold
Retailers that buy and resell merchandise must determine their cost of goods sold at the end of every year. The IRS recommends reaching this figure by valuing your inventory at both the beginning and the end of the year.
According to the IRS, “Some of your business expenses may be included in figuring cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year.”
Anderson further advises using a point-of-sale system to track your costs: “A POS system will help track purchases, inventory and sales. And then an accountant can ensure the accounting is set up correctly. This will make tax preparation easier at the end of the year.”
Tracking your inventory and sales throughout the year is not only an essential business practice, but it can help you get the tax breaks you deserve. With the premium point-of-sale systems from Talus Pay, you can greatly reduce human errors and keep a more accurate record of your stock.
To learn more about how Talus Pay can help your thrift store stay organized, request a free quote today.