Tax season—it’s that time of year again. Some people dread it, but you don’t need to. Today we’re here to make it simple for you and lay out all the documents that you’ll need to file your salon’s taxes. Keep in mind that when you own your own business, the IRS considers you to be the employer and the employee.
A 1040 form is used by U.S. taxpayers to file an annual income tax return. There are two different sections on the 1040 form: 1) reporting your income and, 2) reporting your deductions. These will determine the amount of tax you owe, or the refund you can expect to receive after you’ve filed.
If you’re a small business owner, or if you own your own salon, you will report your business income and expenses on Schedule C, which we’ll talk about next. Your income and expenses can include more than just tips and fees from clients—it can also include any products sold in your salon. Keep in mind, though, that any expenses you spend on products sold can be documented as a business expense. You’ll need to write that cost separately from other expenses. You can find more details on the IRS website.
You will also need to report the total amount that you earn on your 1040 form, along with any other income. Most business-related expenses are tax deductible, so make sure you keep detailed records throughout the year. Here’s a list of things that are deductible, that you may not automatically think of. You can also find this information on the IRS website to see what exactly qualifies for a tax write-off.
Schedule C is used to determine whether your income earned during the year is considered loss or profit. You will use your business records to obtain the information needed to fill out this form. Any money you made during the year will be reported on Schedule C. Using tax preparation software can help you fill out this form, because it will ask you a series of questions to help you complete it. Schedule C includes information on the self-employment tax and instructions on how to compute it. Both Schedule C and your 1040 will need to be sent to the IRS, either electronically or by mail.
The IRS considers the 1099 form the “information returns.” If you are a self-employed hair stylist you’ll need to maintain thorough records throughout the year of all of your expenses, income, tips, supplies, booth rentals, etc. and record it on a 1099. This will show the stylist the total amount of expenses they will be able to deduct from their income come tax season. You may also need to pay taxes quarterly in April, June, and September based on your income made during those quarters. Any overpayment of taxes is usually returned through a tax refund at the end of the year.
Because the IRS considers you to be the employer and the employee of your business, this means that you must pay both the employer and the employee share of the Social Security and Medicare taxes, which are known as the self-employment tax.
If you have employees at your salon, you’ll need to remind them to fill out a W-2 form each year for the year’s taxes. So they’ll need to fill out the W-2 in the current year for the following year’s tax filing. However, if their information stays the same year after year, they won’t need to keep filling it out each year. This form is required by employees who have taxes withheld from their paychecks throughout the year.
If you have any other questions, visit the IRS website or contact a tax consultant. Afterall, we provide insurance and we are not tax experts. We hope this article was helpful for you. Best of wishes with filing your taxes this year! And if you have any questions regarding insurance for beauty professionals, visit BBI’s page.