Capitalizing Landscaping Expenses

Landscaping is the designing, planning, and construction of gardens and other features that create usable space for outdoor activities and enhance the appearance around a property. Modern landscaping includes both hardscaping and softscaping, although many people use the terms interchangeably. Hardscaping refers to non-organic materials, such as retaining walls, decks, firepits, and more. Softscaping includes the planting designs, creating burms and grading, and mulching.

As commercial properties compete for customers, it’s important that they look their best. Adding a new landscape design can help to boost curb appeal and attract new clients. However, it’s important to consider the financial implications of any landscape project. In some cases, capitalizing landscape expenses can provide tax advantages and improve financial reporting. In this article, we will explore everything you need to know about capitalizing your commercial landscaping costs.

Is Landscaping a Capital Improvement?

Whether or not a particular commercial landscape project is considered a capital improvement will depend on the specific project. The IRS defines a capital improvement as something that adds value to real estate and improves it in a way that it wasn’t previously improved. On the other hand, repairs merely preserve existing value.

Capital improvements can include things like replacing old or dying shrubs, removing dated plants, and introducing new landscaping features. However, it’s important to speak with an accounting or tax professional to determine if a particular project qualifies as a capital improvement.

If a landscape project qualifies as a capital improvement, the customer will not be charged sales tax on building materials. All other repair, maintenance, and installation services are taxable, unless the customer has provided a valid sales tax exemption certificate.

The benefits of capitalizing commercial landscape expenses can be significant. By taking advantage of this process, companies can save money and enjoy greater profitability. However, it’s important to keep in mind that not all businesses are able to benefit from this process. In some cases, the cost of capitalizing landscaping expenses may be prohibitive or impractical.

It’s essential to break down profitability in a landscape business in order to understand where your profit comes from and how to increase that profit. According to Trey Ball, CFO of Michael Hatcher & Associates, in Olive Branch, MS, most landscape businesses are missing out on the potential for increased profits by not knowing which services are their most profitable.

For example, if a company’s most profitable service is installing water features or hardscapes, they can improve their profit by offering these services to more of their clients. By doing this, they can maximize their revenue and continue to grow their business. Using landscape business software can also help to streamline the process of measuring profitability and identifying the most profitable services for a company. However, a business should consult with an accounting or finance professional before implementing this type of system. They can help to ensure that the company is following all relevant regulations and making the most of its resources. capital landscaping