Is there such a thing as an un-holiday?
A day of dread where we annually mark unpleasantness? If not, there should be. And Tax Day would be the first one on the list.
Tax day always feels to me like I’ve been given a significant chunk of homework that ends in me giving the teacher money - and if I do it wrong, they'll send me to jail.
Am I just being dramatic? Definitely. But Tax Day is still a major stressor for many of us. We’ll go over the different ways self storage operators can approach paying taxes to try and make this un-holiday a bit less painful!
There are many ways to approach tax season. Some operators hire an accountant (CPA) to handle it - others utilize their accounting software. Still others prefer to file their taxes by hand.
The way you choose to attack taxes will determine a lot about how difficult they are to complete, and can even impact how much money you end up paying.
As always, the best resource for legal information is your state self storage association! StoragePug is not a source of legal or financial expertise.
Many small business owners feel they have no choice but to do their taxes themselves - others are just confident in their ability to do it right! Doing your taxes yourself is the least expensive way to prepare your taxes, as long as you get it all correct.
Small business taxes are more complicated than individual taxes. The amount you’ll owe Uncle Sam can vary based on what type of business you’re registered as.
Most small business are operating as either a sole proprietorship or a limited liability corporation (LLC). It’s also possible to run your LLC as a sole proprietorship, or you can run it as a corporation.
If you’re registered as a sole proprietorship, you’ll be able to simply add a Schedule E attachment to your personal (1040) income tax filing. If you’re filing as a corporation, you’ll need to fill out Form 1120.
According to Inside Self-Storage, many operators make the mistake of filing their business income on the Schedule C form as active income, when the rental income from a self storage facility should be filed as passive income.
Active income is taxed at a higher rate than passive income! Basically, if your business makes passive income, you don’t need to pay taxes for your “employee” (you) as well as the “employer” (also you).
Check with your state self storage association to ensure this categorization is correct in your state before you file!
Filing your taxes by hand requires much more research into the particulars of the tax code than either of the other methods. This path is generally preferred by operators of small self storage facilities; those that won’t be paying (relatively) huge amounts in taxes anyways.
The larger your business, the more you risk losing out on by doing the taxes yourself.
That’s not to say that owners of multiple facilities can’t do their own taxes - only that any mistakes or omissions will be more costly for these businesses than for smaller ones.
This method is also only preferable if you’re fairly well-informed about financial matters ahead-of-time. If you know the length of commercial building depreciation off the top of your head, then maybe filing by hand is your best choice!
If depreciation sounds like how your kids act when they get socks for Christmas, maybe try:
If you’re already using accounting software, tax time should be easy! All of your finances are conglomerated in one place, and almost every accounting software can also prepare taxes for you. If not, the accounting software should be able to provide reports that make filing taxes easier.
Tax prep software, such as QuickBooks and TurboTax, are designed to automate your tax filing, ensure you get all the deductions you’re entitled to, and take the guesswork out of your accounting. Of course, for these benefits, the software companies charge you money.
The amount you’ll be charged depends on the size of your business, which software you choose, and what features you opt for.
With tax filing software, you’ll still be in charge of inputting the data, unless your property management software or accounting software interfaces with your new tax software. This is still much faster than filling out the paperwork by hand, though.
If you’re not sure whether to go with software or filing by hand, consider how long tax filing normally takes you, and what else you might be able to do with that time. Every hour you spend working has monetary value to your business - don’t sell yourself short by thinking you can just “work harder” and save money!
However, generic small business tax software may miss out on some deductions that self storage operations are entitled to (like the Schedule E vs Schedule C note above). If you want to ensure your business saves every drop of money you’re entitled to, a self storage specialized CPA is the way to go.
A CPA, or Certified Public Accountant, is the most expensive and most accurate way to file your taxes. These are trained professionals you can hire to organize your bookkeeping, plan your taxes, file taxes, and help you with budgeting, payroll, loans, etc.
These services will likely cost more than tax filing software, and will certainly cost more than filing on your own. However, this cost may be outweighed by the time and money you save by having a professional help with your taxes. If your CPA saves you a few thousand dollars in taxes through cost segregation, deductions, and depreciations, then you come out well ahead!
Most self storage associations do recommend finding a CPA with self storage specific knowledge. This industry isn’t exactly the same as other small businesses, and a CPA that isn’t familiar with it may not be able to help as much.
CPAs require the least input from you to file your taxes, and are most likely to get you the maximum savings. They’re also the most expensive. The larger your business is, the more you’ll want to hire a professional to ensure you don’t overpay!
| Type: | Pros: | Cons: | Best for: |
| Filing by hand | Least expensive |
Takes the longest Most likely to miss out on savings |
Small self storage operations |
| Filing with tax software |
Saves the most time Some cost, not expensive |
Takes moderate input from you May not be self storage specific May not find all possible savings |
Small to middling self storage operations |
| Filing with a self storage CPA |
Saves lots of time Most likely to get the maximum savings |
Most expensive Still requires some input from you |
Best for middle to large self storage operations |
For more ways to save time and money for your self storage business, check out these links:
At StoragePug, we build self storage websites that make it easy for new customers to find you and easy for them to rent from you.
