Mar.22,2022
Disclaimer: This article is not intended to provide formal tax advice. It offers general tips and background derived from research, rather than from tax professionals.
It’s no secret that taxes are a real pain in the rear, but they’re just one of those things you have to do when you’re in the beauty biz (or any biz, for that matter). Trust us when we say that the longer you leave taxes looming, the worse they’ll be. So take a deep breath, grab a nice vintage, and dive in.
As a beauty professional, there are three different ways you can file your taxes. One way is if you are employed by a salon or spa that pays you either an hourly wage or a salary. Another way is if you are self-employed and either rent a booth in a salon or spa or do mobile styling on your own. The final case is that you are a beauty boss filing taxes on behalf of an entire operation.
If you’re a salon employee, the salon or spa likely withholds taxes from your paychecks, which makes doing taxes a much smoother process. If you’re self-employed or a business owner the burden of putting money aside for taxes is on you.
Let’s examine the different options for filing so that you can learn all the deets of your situation.
If you are employed by a salon or spa, that means your employer withholds income taxes as well as social security, medicare taxes, and unemployment taxes. This makes you what’s known as a “W-2 employee,” because that’s the form you’ll use to report your yearly earnings and the amount of payroll taxes withheld.
Taxes for an employee are pretty straightforward. All you have to do is enter in your information (or pay an accountant to do it for you), and ensure that you don’t owe any additional money.
If you also cut hair or perform other services outside of your primary place of business, you may need to file a Schedule C form in addition to a W-2. See the next section on filing if you’re self-employed for more information.
If you’re new to self-employment taxes, then you are in for a treat. Not the kind of treat you get to cap off a fabulous dinner, but the type of treat that ends up costing you some cash.
Working for yourself or as an independent contractor means the responsibility for paying employment taxes, income taxes, social security, and insurance is all on you (#responsibility). Money for those things won’t be taken out of your earnings automatically like they are for standard employees. So, you’ve got to keep track of roughly how much you owe and set that money aside for when tax season comes around and it’s your time to pay Uncle Sam.
One of the most important tax forms for self-employed professionals is the Schedule C, which tracks your profits and losses. Schedule C is the “Sole Proprietorship” form and will be filed as an attachment on form 1040, which is the basic tax return form.
As a self-employed beauty professional, you’ll receive a 1099 form from business owners that paid you over $600 as an independent contractor. This form reports the total amount of money you made from those employers so you can calculate how much you owe in taxes. The information you receive from 1099 forms should go on a Schedule C. If you receive payment exclusively from clients, you’ll also need to add total income from services and tips to the income field of the Schedule C form.
It’s also important that you keep track of your booth rental expenses. As a booth renter, the IRS expects you to submit a 1099-MISC form to the salon owner if you paid them more than $600 in rent, so long as it’s a non-corporate owner.
The main difference between being self-employed and running a business is that you’re responsible for correctly reporting the income you paid out to staff. Full-time employees can be issued a W2, while contractors that you paid more than $600 to can be issued a 1099 form. Both forms can be ordered from the IRS website for the relevant tax year.
You’ll also need an EIN, which the federal government uses to identify employers. Luckily, getting an EIN is quick and easy. There’s a free application on the IRS website that will walk you through the process, and an EIN can usually be issued within one business day.
Salon owners have a few legal structures they can use for their business, but you’ll most likely want to be registered as an LLC. Registering as an LLC makes your taxes more flexible. LLCs can choose to be taxed as a corporate entity (C corporation) or as a “pass through” entity (S corporation). It’s best to be registered as a pass through entity, as you’ll avoid paying corporate taxes on profits in addition to your own personal income. Who doesn’t love a lower tax bill?
Now that we’ve covered the basics, it’s time to get into the nuts and bolts that will help make your taxes easier and help you keep more benjamins in the bank.
For beauty professionals, tips are a major part of earnings. But they’re not really part of your salary, so do you have to report them?
The short answer is “yes.” The IRS requires that you report any tips you earn, whether you’re an employee or self-employed. Some employers opt to put tips on employees’ paychecks in order to simplify the process of reporting, bundling them in with base pay.
However, if you work for a salon that does not include tips on your paycheck, or if you’re self-employed, then you have to report them as part of your yearly income.
Be smart: Track your tips all year long with the date you worked and amount you earned. Accounting software can handle this for you easily — often through a mobile app — but you could also use a spreadsheet or plain old notebook. What matters most is the year-end total, so use whichever method works best for you.
Being a self-employed beauty professional has its downside, but it also comes with plenty of perks. When it comes to doing your taxes, one of the biggest perks is the ability to reduce your total taxable income by deducting expenses related to running your business.Expenses are any costs related directly to the operation of your business. The IRS is the ultimate arbiter of what’s in-bounds and what isn’t, but you might be surprised at what counts. Your morning latte? No, but the phone you use to book appointments? Yup. You can even deduct a percentage of your rent if you use any of your home for business purposes, like an office or to see clients.
The top beauty business expenses include:
Rent (chair, building, etc.)
Marketing materials (business cards, sponsored IG posts, giveaway items, etc.)
License renewals
Continued education
Training
Products
Tools
Insurance
Cell phone (with this you can only deduct the percentage of your phone you use on business interactions. If you use your phone 60% of the time for business, then you can write off 60% of your total cell phone costs.)
Travel to events and classes (including plane tickets, Uber/Lyft costs, and half of your lodging costs and meals, if those are required to attend)
Mileage (any appointments that take you offsite or any errands related to your beauty biz you can write off $0.56/per mile that you had to drive)
Uniforms (if you work at a salon or spa that requires uniforms, you can write off this cost)
Childcare (if you have to pay for childcare while you work, you can write that off.)
Business owners have their own set of deductions that can help put money back in their pockets too. These are known as capital expenses, and they’re more flexible than you might think. Capital expenses are fairly broad, but the IRS mostly counts assets that will keep a business running for years to come, like building costs, work laptops, or even a vehicle. Deductions from capital expenses can be spread out over multiple years, so beauty business owners should take advantage of them.
Just like with tips, do yourself a favor and track your expenses all year long. At the first of each month, go through your business expenses from the previous month and track them in your spreadsheet, notebook, or software.
Here’s how you’ll want to track them:
Category (ex: rent, supplies, etc.)
Date purchase was made
Amount
Description of how it applies to your business
Receipt for physical proof of your purchase
Keep the receipts. Keep the receipts. Keep. The. Receipts. Is it a hassle? Yes. Should you do it anyway? Oh, yes. You won’t necessarily need them to file, but if you’re ever audited, you’ll be very glad you’ve got that paperwork.
Depending on your circumstances, you may also want to keep track of the odometer readings in your car. If you commute between different branches or go on work-related trips, you may be able to write off miles driven. Just be sure to keep note of what you drove for work versus personal use.
1099s | January 31: If you are an independent contractor, you should receive 1099s from any company you worked with by this date. Give them a couple of weeks’ grace period, then follow up to find out where your forms are so you can get going on your taxes.
Estimated Quarterly Taxes | April 15, June 15, September 15, January 15: If, as a self-employed beauty professional, you don’t love the idea of paying out a massive lump of money come April 15, you can opt to pay your taxes quarterly instead. To estimate your quarterly taxes, take a look at what you paid in taxes last year and determine whether you think this year will be about the same, more, or less. Once you know the rough ballpark of taxes you expect to pay, you divide the total amount you think you’ll owe come April 15 by four and pay that amount each quarter. Note that if you underestimate what you need to pay for your estimated quarterly taxes, you’ll have to pay the remainder in April when the true amount of your taxes is determined. If you think your overall earnings are likely to change enough to change your tax bracket (either up or down), calculate the impact that will have on your taxes due.
Even if what we outlined above makes sense and sounds doable for you, it’s always a good idea to have a tax professional on speed dial to help you through any questions you may have as you prepare your taxes. If you’re a salon employee, it should be fairly straightforward, with the potential twists of things like overtime or tips. You’ll likely want the benefit of an accountant if you’re self-employed, but make sure you engage the services of one with a return guarantee. In other words, if they make a mistake, it’s not on you to pay for it.
Preparing taxes is nobody’s idea of a party, but with some thoughtful preparation, they don’t have to be torture. And if that wasn’t you last year, at least you can start getting your financial ducks in a row so you don’t suffer the same fate next year.
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