Editor’s note: The opinions expressed in this commentary are the author’s alone. Jamil Khan is chief strategy and small business officer for H&R Block, which was founded in Kansas City and boasts its headquarters in downtown KC. H&R Block is a financial supporter of Startland News.
As Kansas City welcomes nearly 300,000 people for the 2023 NFL Draft, businesses are excitedly gearing up for guests.
For KC businesses, the city will see roughly $125 million in economic activity, and about $10 million in tax revenue, according to Kathy Nelson, president and CEO of the Kansas City Sports Commission and Foundation. That’s good news.
Big events like the NFL Draft generate an influx of revenue for host city businesses, including small business, and with this comes tax implications. But there’s no need to worry as a little preparedness will go a long way.
What can small businesses do to get ready?
Record keeping is important because business owners will likely be busier, not only when it comes to increased foot traffic, but also with planning and preparation. Keeping track of things as they happen is much easier than trying to remember them after the fact, especially during a large-scale event like this.
We recommend keeping track of receipts and invoices and making sure you have a good system in place for tracking time worked by employees. It’s important to have a plan for how to keep track of expenses that occur during the event, so they aren’t forgotten.
Small business owners should consider using an expense tracker or to sign up for a bookkeeping service to help with this, so you are organized when tax time arrives.
What are potential watch outs?
Bars and restaurants will likely see increased revenues. This could lead to a larger bill when tax time arrives.
If the taxpayer is already making estimated tax payments throughout the year, the increased tax liability will likely result in an increase in their estimated payments. If the taxpayer spreads their estimated payments equally between each quarter, the burden may not be felt as much. If they don’t, the extra amount will be paid during the second quarter for calendar year filers.
On the other hand, if the taxpayer wasn’t required to make estimated payments, the increased revenue may result in estimated payments being owed.
Another issue small business owners may face is an increase in their labor costs, because they either hire more help or pay overtime to handle the increase in foot traffic. There are a couple of tax aspects that come into play, with the first being that the business’ deduction for wages will increase. This would help offset some of the increased revenue, which would in turn lower their tax bill.
The other issue is that increased wages will result in increased payroll tax deposits. In some cases, with a food truck or small boutique, the business may have never had employees. In this case, the business will have to make sure they are withholding employment taxes, depositing them on time and filing employment tax returns quarterly, or annually if they qualify.
Businesses may also spend a little more money on advertising during this time to capture some of the increased foot traffic in the area. This expense is generally deductible and will help the taxpayer offset some of those increased revenues on their return. Some businesses like restaurants and bars may also increase their inventory in anticipation of increased foot traffic. The cost of the inventory will be deductible come tax time, which again will help to offset some of the revenue.
Finally, operations like Airbnb and rideshare operators will likely see an increase in business during this time. Not all the above applies to them, but they will want to make sure they keep track of any increased expenses incurred, because those expenses will help to offset increased revenues.
Coming off a Super Bowl victory for our hometown Kansas City Chiefs, the city hosting this national event is particularly special. While the increase in economic activity is something many businesses look forward to, we hope small businesses take the time to prepare for this financial influx and the ways it can affect their operations.
Block Advisors, which is part of H&R Block, is available to answer questions from business owners as they prepare and give advice on what to expect when tax time rolls around. Block Advisors offers bookkeeping services to help ease small business owners’ minds — so they won’t have to add accounting for this surge of revenue and expenses on their books to their already long to-do list.
In addition, Block Advisors offers payroll services to help ensure small business owners are accounting for increased labor costs.