What Taxes Do You Pay To Own An Interior Design Business?

The Interior Designer Business Owner’s Guide to Taxes

If you are like most interior designers, you would rather spend your time poring over mood boards than tax forms. But knowing the tax obligations of your interior design business, keeping accurate records and understanding how to reduce your tax burden is a necessary part of running a successful interior design business. The more you know about how to do taxes as a small interior design business owner, the less likely you will face unpleasant budget surprises when taxes are due, penalties for late payments, and burdensome audits.  

This startup guide details what are the taxes for a small interior design business, how to do taxes as an interior design business owner, and tips for claiming the deductions you have the legal right to. As always, this article is not intended to replace the advice of professionals such as tax preparers and lawyers. Click on a link below to jump straight to the section you’re most interested in:

• What Taxes Do You Have to Pay for a Small Interior Design Business?
• Tax Deductions Interior Design Businesses May Qualify For
• How to Prepare Your Interior Design Business for Tax Season

What Taxes Do You Have to Pay for a Small Interior Design Business?  

Owners of small interior design businesses are typically responsible for these four common types of taxes and both the timing and process for paying some of these taxes varies with the structure of the business. 

• Income Tax All interior design business owners are required to pay federal tax on the income earned by their company. Depending on the location of your business, you may also need to pay state income tax. In general, for income tax purposes, both sole proprietorships, and single-member limited liability companies are not viewed as separate from the owner’s personal income tax and are taxed at that same rate.  
  
• Sales Tax The end user of goods and services is legally responsible for paying sales tax, but in practice, interior design business owners take varied approaches when it comes to who pays the taxes for products they procure for their clients. Some pay the sales tax and pass the cost on to their customers. If you do this, make sure you include sales tax in your estimates so they will not be surprised by the large amount when payment is due. Some interior design business owners register as a reseller to clarify with their vendors that the end user will be paying the sales tax. Whatever method you choose, keep it consistent and be transparent with your clients. 
  
• Payroll Tax When you have employees, you have certain employment tax responsibilities such as Social Security and Medicare taxes, and federal income tax withholding. Also check with state officials to determine if you are responsible for paying state employment taxes, which varies by state.  
  
• Estimated Taxes If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax. Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. If you don’t pay enough tax through withholding and estimated tax payments, you could be charged a penalty. You also may be penalized if your estimated tax payments are sent late so set your calendars alerts.

Tax Deductions Interior Design Businesses May Qualify For

The good news is that many of the costs of doing business are deductible and can offset the amount of taxes you will pay. Doing your write-offs due diligence can bring significant savings. And knowing from the start that you can deduct purchases of software, or the costs of travel meals, can help assure that you will keep accurate records of those expenses throughout the year. Here are some common deductions. Check with your tax preparer for more:

• Meals Many expenses for food incurred during travel or meetings with clients can be deducted when conducted on behalf of your business.
• Office Supplies Most of the equipment, software and other materials you use to operate your business are eligible deductions.
• Home Office If your interior design business is located in your home, you may be able to deduct a portion of  expenses related to your home such as utilities, interest on your mortgage and internet costs. Some of these deductions only apply if you are using a space in your home exclusively for business so this is a consideration when setting up your work situation. The percentage you will be able to deduct varies with the size of your home office and other factors.
• Office Space Expenses The rent of leasing an office space is typically deductible.This also typically applies to the cost of renting a co-office or space for events, photo sessions and more. If your expenses include covering the cost of utilities you can deduct those costs too.
• Health Insurance Premiums If, like many owners of small interior design businesses, you pay your own health insurance premiums as an employer, you may be able to write off part of the cost. 
• Mobile Phone & Internet Bills Figure out the percentage of the time you are on your devices doing business to determine this deduction. Every text, phone call, and email interaction with clients, vendors and subcontractors counts.So does the time you spend creating proposals, tracking projects and sending invoices. 
• Networking, Professional Development While running into a client at the gym may not be deductible, the cost of attending professional workshops, trade shows, seminars and even networking events directly related to your interior design business often are. Save all your receipts, and any other records related to the activity. 
• Reference Materials - The cost of  e-books, print books, training manuals and other references used to operate a business are often deductible.They do not need to be specific to the interior design industry as long as they contribute to running a business.
• Software You are likely eligible to deduct the cost of software you use to run your business as well as some of the other tech tools you use for editing podcasts, videos and photographs for example.
• Vehicle Use Travel between your home to your business office is not deductible, but all those times you are driving from your business base to client meetings, job sites and other business situations typically are. Keep a log of your mileage to receive a per mile deduction. 

How to Prepare Your Interior Design Business for Tax Season

The more you record transactions as you go, and prepare for tax season throughout the year, the easier it will be to fill out the tax forms when the time comes. This can help with documentation for other taxes that are paid annually. Here are some tips to avoid headaches such as fines, audits, late penalties and late nights scrolling through financial records: 

• Think Taxes From the Start: From your very first job and invoice, think about how it applies to the taxes you will need to pay and how you need to record this. Getting in this habit when you open the doors of your interior design business, will smooth your accounting journey throughout the life of your business. You may want to meet with a tax preparer to help get that plan in place, especially if you are making quarterly tax payments. 
• Document Every Financial Transaction: Accurate and meticulous record-keeping is crucial for easing what can otherwise be a monumental task of filing tax forms. Figure your profits and deductions as you go, record all earnings and expenses as they happen.
• Keep Your Financial Documents Organized: Know where your records are filed on your computer or in your desk and find an organizational system that works for you so that you can find them easily. 
• Get High-Tech Help: Purchase an accounting software that will allow you to track invoices, purchase orders, business expenses, inventory, and any other assets, expenses, or income. This will provide a detailed record that you or a tax preparer can use to help you estimate and make needed tax payments. 
• Know the Deadlines: Various taxes have different deadlines so mark your calendar and set alerts at the start of whatever your tax year is so that you will be reminded what you need to know when. 
• Hire a Tax Professional: A pro tax preparer can file your forms for you and assure that you do not overlook any deductions, deadlines or responsibilities. But remember, you still need to provide up to date and accurate records to the preparer. 
• Integrate Your Accounting Software: When purchasing business management software make sure it plays well with your accounting tools so that there is a seamless integration between the operation of your business and your tax records.

Hire a Bookkeeper: Some owners of interior design businesses hire a pro to handle their finances, but this of course, is an added expense and is not always possible especially for nascent entrepreneurs.

Make Taxes Less Taxing for Your Interior Design Business

Few interior design business owners rush home excited about doing their taxes and it is easy for new business owners to feel overwhelmed by the complexities and varieties of taxes. But establishing a routine and system from the first day you open your interior design business, and knowing what the taxes are for a small interior design business will ease the process so you can focus on running your successful interior design business.  

For more help running smooth design business operations, start a free trial of Houzz Pro's interior design business software today.

The information contained in this article should not be relied upon as legal, business, or tax advice. We encourage you to seek guidance from your legal counsel, business or tax specialist with regard to how the information contained in this article may or may not apply specifically to your business.