Understanding the Tax Implications of Owning a Dog Daycare

Daycare business is a great way to combine your love of dogs with entrepreneurship. Many people dream about opening their own dog daycare or boarding kennel, but few actually make it a reality. So, that said, congrats to you. You did it. However, it’s important to understand all aspects of running a business, including the tax implications. The last thing you want to do is mess up your tax obligations and then you're SOL. Failing to properly plan for taxes can lead to unexpected expenses, fines, and even legal trouble.

Like almost any business, the tax implications of owning a dog daycare can be complex, and it’s best to consult a tax professional to ensure you’re in compliance with all laws and regulations. As a reminder, DoggieDashboard does not give legal or tax advice. We're just blogging here. However, there are some general principles you should be aware of when starting your dog daycare.

1. Income Tax

Your dog daycare is a business, and as such, any income you receive is subject to income tax. This includes any fees you charge for daycare services, boarding services, grooming services, or any other service you offer. You’ll need to keep accurate records of your income, expenses, and taxes to ensure you’re in compliance with the law. The basics are pretty simple. Money you're paid for your services are considered income. Money that you spent running your business (dog food, facility rent, utilities, etc) are expenses. After you subtract the expenses from the revenue, you have the profit. That's what you are taxed on. While DoggieDashboard does provide some basic bookkeeping functionality, there are numerous online small business tax platforms, QuickBooks for example, that are better suited for keeping track of your revenue and expenses.

2. Employee Taxes

If you have employees, you’ll be responsible for withholding and paying certain taxes on their behalf. This includes federal income tax, Social Security tax, and Medicare tax. You’ll also be responsible for paying unemployment insurance tax. As a new business, you're most likely going to be employee-less for the first year. However, once you have to hire your first employee, you'll need to figure out the logistics of paying employment taxes. Your business's attorney will help point you in the right direction.

3. Sales Tax

If you live in a state that charges sales tax, you may be required to collect and pay sales tax on the services you provide. This includes daycare services, boarding services, grooming services, and any other service you offer. Sales tax vary from state to state. Some states have sales tax on certain items, but not on others. Some charge different rates for different services. Once again, with your attorney, you'll be able to figure how much you should be putting aside for your sale tax. The last thing you want is to realize you have a huge sales tax bill to pay at the end of the year.

4. Property Tax

If you own the building where your dog daycare is located, you may be responsible for paying property taxes. Property taxes are based on the assessed value of your property and are usually collected annually by the local government. Unless you're lucky enough to already have a property that you own, it's most likely that you'll be renting for the first few years until you prove that your business is a success. That said, there's no property tax when rent, so that's win!

5. Business Licenses and Permits

You may be required to obtain business licenses and permits in order to operate your dog daycare. These can include a general business license, a sales tax permit, and any other permit required by your state or local government. As with most things in the USA, every state does things a little bit differently. If you happen to be in Illinois, the state has a nice website that will help you get started launching your dog daycare. If you're not in Illinois, just google "permits needed to start business in _________" and fill in your state. Enjoy!

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