The plumber's and electrician's guide to managing billing and taxes
If you work as an independent home contractor in the plumbing or electrical maintenance industries, you must become well-versed at not only the technical but also the business side of residential contracting. There is a taxman to make happy, after all, not to mention customers and subcontractors; the application of good business sense to issues of billing and taxation is in order.
The steps for properly billing and taxing customers in line with government regulations vary by state. However, there are some common areas of consideration that most plumbing and electrical contractors need to keep in mind.
Invoicing and work order management
The most basic unit of billing is the invoice—a numbered and branded document on which you list each element of the services rendered, including the cost of all materials and labor itemized by transaction. Each item should have a specific, provable cost. Remember to include a due date with each invoice.
Be sure to maintain excellent invoice records. This point is so important it bears repeating: keeping a thorough and detailed record of your invoices serves many purposes, not the least among them making your taxes less of a nightmare. This means backing up all paper documents, emails and receipts associated with particular jobs. For those who are a bit more tech savvy, advanced invoicing or CRM software is available to introduce automation and efficiency into the accounting process.
To streamline complex ongoing transactions, plumbers and electricians may find it helpful to integrate invoicing into a larger time and materials billing ecosystem. Good work order management ensures you can bill quickly and accurately, while easily tracking the work data necessary to strategically file error-free taxes.
There are some simple questions to ask yourself before you cut loose and bill to your heart's content. For example: Will you take cash, credit or checks? How will you handle down payments? How long does the customer have to pay up? What procedure will govern change orders? As a contractor, of course, you'll want to get it all in writing.
Think about each stage of the job process and decide in advance how you will handle normal billing procedures and basic troubleshooting when things don't go exactly as planned. Maintaining a consistent set of work and payment policies is crucial for your success.
State taxation of contractors and customers
Independent and small-firm plumbers and electricians should understand tax-related distinctions made between capital improvements, repairs and maintenance services. These different types of jobs are often subject to different tax rules. Making an addition to a piping system, for instance, might be considered a capital improvement, while unclogging drain pipes may be considered repair or maintenance.
You must know how you pay taxes when you buy and sell labor and materials, and also which taxes you'll need to pass on to customers. Even though most states don't charge taxes on services per se, contractors do need to understand sales and use taxation of services rendered to real property – like wiring and pipes, for example.
Plumbers and electricians are often subject to sales and use taxes. They may need to submit this information in a monthly sales tax report to the state government. All professionals are responsible for learning the rules for their state-of-practice. Be sure to check with the relevant regulatory agency.