Tax Tips for Cosmetology, Makeup, Nail & Barber Industry

Hello I’m LaQuitta Jones, a tax accountant with Terrell Tax & Planning, LLC, Atlanta’s premier small business tax accounting firm, where I specialized in maximizing profit and minimizing tax. Thank you for your time, I wanted to share with you some tax tips for the beauty industry, such professions as Cosmetology, Makeup, Nail and Barbering. Numbers are my passion, however I do understand that most in the beauty industry and business owners as a whole, do not share in this passion, and did not become a business owner to rumble with numbers but to share their gifts (services) and creations (products).

Who Am I

The beauty industry today is stronger than ever, providing a wide range of services and products that helps everyone in some form or facet, put their best self forward.  

Being apart of such a global industry, with some projections claiming 8.5% growth by 2014, is not a small feat. To be successful and build the business of your dreams, you must be aware of what you are doing in your business as well as how you’re doing it. Accounting will be your road map, there are very few ways around it and shortcuts usually cost more in the end.

The Business of Beauty

Let’s be clear, you are a person of business, in business, to do business, being open to knowledge will put you on the path to understanding accounting and how it benefits you and your business.  Whether you’re a shop owner, an employee of the shop, or an independent contractor (such as a booth renter or freelancer), one of the first, most important decisions you should make is your ownership structure (I often refer to this as your business foundation, and we know the importance of foundations). Most common are sole proprietorship, partnership, and corporations. This is so important because other aspects of your business will depend on your structure, such as how you report your income, which tax return form you have to file, how you are taxed, and things of that nature.

Let’s begin with the Shop Owner, the decision on how to structure, is solely your choice to make,I often advise my clients to begin withthe end in mind, what do you anticipate for your business, not just currently but in the future, say 1 year, 2 years or 5 years (will you stay a mom and pop operation, would you like to franchise and do you have partners?

Here’s Some Things To Consider…

1. Business Income – What is taxable and how will it be taxed?

Business Income = Revenue – Expense

Revenue is the amount of money received (or to be received) in exchange for the product and/or services provided and sold. Ex. You provide service to a customer and they pay in $80.

Your revenue is $80, for this transaction.

Expenses are things you spend money for or cost incurred in your efforts to generate revenue, which is the cost of doing business. Such as inventory purchases, salary and wages, transportation, advertising, electric and water bills, communication, professional fees, etc.

2. Maintain separate personal and business records?

Mixing business and personal transactions can get messy fast. I understand it’s easy to do but if at all possible keep the two separated. From the very beginning, treat your business, big or small, like a separate entity. Example, get a separate banking account and only use your business bank or credit card for business transactions.

Each month pay yourself a salary and have it deposited into your personal checking account, only use your personal account for personal transactions.

3. Employees or Independent ContractorsAt some point we’ve all been an employee, which is one who works at the direction and control of another for compensation. Control is the key piece here, with the IRS it is what differentiate employee from contractor. As an employer, it is not the physical aspect of control nor a certain amount of time, that determines an employee, you simply have to have the right to control. If you give extensive instructions as to how, when, or where to do the work and where to purchasethe supplies, then more than likely you are the employer and the worker is your employee. If no control exists, they are an independent contractor.

4. TaxesThe structure you choose for your business determines what taxes you must pay, how you file them and when. This list is not all inclusive, please consult a professional to determine your exact tax obligation.

Below are some of the taxes a shop owners are responsible for:

Income TaxEstimated TaxSelf-Employment TaxEmployment TaxesExcise Tax

As for an Independent Contractor (Booth Renter / Freelancer), youto must decide on a structure, for this stage of business, sole proprietorship is the most common; it is simple, quick and easy. However, maintaining adequate records is of no less importance for a sole proprietor, you are still required to file taxes based on your income.

Now for the Independent Contractor

But you also could greatly benefit from knowing exactly how much you earn, where your income comes from and how cost affects your growth, all of which accounting and / or bookkeeping provides.

Of course there are pros and cons to being a sole proprietor and I highly advise consulting a professional, before assuming this is the best option for you.

Here’s Some Things To Consider…

1. Income, compensation you receive for doing work or providing services as a self-employed individual, not as an employee. You must know how much you, where it comes from earn and how can I earn more? How do I handle my tips?

2. Expense, when you set out to earn money you must purchase something to help you accomplish this, these things are expenses and should do deducted from the money you earn before you pay taxes on that money. The impact of expenses for sole proprietors, is to reduce both the regular income tax and the self-employment tax. Some deductions may have limits, based on whether your gross business income is greater or less than your total expenses. Always ask yourself, How much did I spend, what did I spend it on and how can I spend less?

3. Taxes, If you are paid $600 or more from your work for another individual client, you should receive a 1099-MISC. And, yes, the IRS gets a copy, too. At time tax, you include Schedule C with your tax return to report the self-employed income – along with the deductions for your business expenses.

And if your net earnings from self-employment exceed $400, you will have to pay self-employment tax. Ask yourself, Do I pay my own taxes or will the salon owner pay them for me, what tax form do I file and when? What tax credits and deductions do I qualify for?

The above is just the tip of the iceberg whether you are in business as an owner and or independent contractor; however, they serve the purpose of providing you direction on being successful in the industry you love.  Small business success, is another passion of mine, you’re success is my success; my company goal is to be of value to you and help entrepreneurs and small businesses do big business.  Thank you again for being proactive with your business and finances, good luck and best wishes with all your future endeavors, now go grow that business…

Call To Action:So if you agree accounting is and should be an important aspect of your business, your next steps should be:

1. Get a “Free Consultation” from an accountantcall (404) 720-4232 or email: laquitta@terrelltaxandplanning.com

2. Keep accurate, timely records of each transaction you make in your business.

3. Select an efficient financial record keeping system (software), that you understand and will keep updated regularly.

“Numbers Don’t Lie, People Do”, You Should Know Where Your Business Stands Financially…

Terrell Tax & Planning, LLCwww.terrelltaxandplanning.com (404) 720-4232