Taxes are an unavoidable part of running your own business, and when I became self-employed as a writer and journalist eight years ago, it was one of the main things I wanted to get right. I’d heard too many horror stories of freelancers making costly mistakes, such as filing their taxes late, and even going bankrupt as a result.
Because I work for many different clients all over the world, I wanted to seek the help of a professional accountant to make sure my accounts were in order. I also needed to write off all my expenses as effectively as possible to reduce my tax bill.
Part of my work as a beauty journalist has led me to form professional relationships with many beauty salon owners — whether through reviewing treatments in their clinics or interviewing them about their expertise for articles. Some of these salon owners have grown their businesses exponentially over the years, starting from small rooms in their homes and now owning several professional clinics. Of course, building a successful business like this relies upon the smooth running of accounts and a clear understanding of taxes.
Below, I share the essential tax tips every beauty salon owner should know, along with real-life case studies and insights from US salon owners.
Types of Taxes for Beauty Salon Owners
First off, salon owners should be aware of a number of different types of taxes.
Income tax
There are three different types of income tax: federal, state, and local. Federal tax is a percentage of your annual income, so if your earnings increase, you can expect your federal tax to go up, too. State taxes vary by the state you live in, so you should check this as soon as possible to ensure you’re filing correctly and on time.
You should also research whether your area has a local income tax. While not every state requires them, they are essential in 16 districts and states in the US, including New York and Columbia, which you can reference on the Tax Foundation site1.
Sales tax
If you sell skincare and haircare products in your salon, you must pay tax on these sales. Depending on your state, you must also pay sales tax on certain services, such as massages and tanning. If you’re unsure, check with your accountant or a tax professional, outlining your salon’s specific services and products.
Payroll tax
If you employ additional staff within your salon, you’re responsible for taking certain taxes, such as Medicare and Social Security, from their payroll. You’ll also need to pay a SUTA tax (State Unemployment Tax Act), which goes towards your state’s unemployment benefit. Each state has specific requirements for SUTA tax, so you should check with state authorities to make sure you’re paying it correctly.
Property tax
If you own the property where you conduct business, you’ll need to pay property tax on it. How much you pay is based on your local tax rates and the property’s taxable assessment (value of the property).
Deductions and Credits Available to Beauty Salon Owners
As a self-employed business owner, you can write off certain expenses needed for your salon as part of your tax bill. Ahead, we look at some of the most common small business tax deductions and some that may surprise you.
Home office deduction
If you rent a booth, pay for a room in another salon, or work out of your own home, you can include this as a business expense. If you work from home, you can deduct a proportion of your rent or mortgage payment depending on how many days or hours you work from it each month.
As a freelancer who works from a co-working space and my home office, I include both my monthly mortgage payment and my gym subscription where my co-working space is based on my list of expenses. My accountant then works out the proportion of these costs that are deductible based on my working hours.
Equipment and supplies deductions
From hair scissors to blow dryers, equipment, massage beds, and beauty products, anything needed to provide your services and run your salon can be included as an expense. Don’t forget less obvious things, like sinks, styling chairs, and aprons.
Education and training credits
If you or any of your employers need specific training or education to enhance your business, you can include this cost against your taxes. Maybe a junior employee attended a hair color training session, or you invested money into training team members on a new treatment such as Morpheus8. You can even include professional magazines used for inspiration and staying on top of industry news. Make sure to record expenses like these throughout the year so you don’t forget about them come tax time.
For instance, I have an Excel document on my laptop where I list any expenses made each month, from magazine subscriptions to software such as Microsoft Word.
If you have to buy stock, such as shampoo and skincare products, Dana Fiore, owner of the Hair House salon in New York, says it’s critical to keep receipts and invoices from wholesalers as organized as possible. “Receipts and invoices from wholesalers are often available digitally and are saved to your professional accounts for easy viewing access and when showing write-offs for tax season,” she told me. “When items are delivered, it’s important to compare what arrived to what is listed on the packing slip and to check for any discrepancies.”
Employee benefits deductions
If you offer your employees any specific benefits — such as health insurance, a pension plan for their retirement, or dental coverage — you can count them as business expenses. Incentives such as the Small Business Health Care Tax Credit2 help small businesses with 25 employees or less provide adequate health insurance for staff.
Record-Keeping and Documentation Tips
Bookkeeping and accountancy don’t always come naturally to everyone (they certainly didn’t to me), but thankfully, there are a number of ways you can keep your documentation and records in order. Effectively organizing your expenses, payroll, and income details will also reduce a huge amount of stress when filing your taxes.
After a few years of self-employment under my belt, I now have a good understanding of what my accountant needs when I file my annual accounts. But in that first crucial year, I asked a lot of questions, such as how much money I should be putting away for taxes so I wasn’t blindsided, and what expenses I could write off.
With daily payments processing and orders for supplies being made on a weekly basis, salon owners have a lot of different elements to factor in. That’s why many use software for tracking income and expenses, leaving you to get on with what’s most important: keeping your customers happy.
“Salons have come a long way from the old days of pen-to-paper reservation books and record keeping,” says Dana Fiore. “Most up-to-date salons now use some sort of software system that is available for salons to keep track of expenses. Some even integrate with spreadsheet systems like Excel and Google Sheets. These systems, like Booker or Vigaro, are multifaceted — scheduling appointments, applying taxes for retail/services, payroll tracking, product cost, etc., are just some of the benefits they provide to make your day-to-day more productive.”
Julia North, a celebrity hairstylist and founder of Wigonia, says that she uses QuickBooks for day-to-day client invoice tracking. “What transformed my efficiency, however, was payment software, Square, for point-of-sale and client management. It slotted in perfectly with my QuickBooks accounting setup and gives me valuable insights into client patterns (such as which times of the year were busier than others),” she explained. “For receipts, I swear by Receipt Bank — you scan a receipt and it categorizes everything from new salon chairs to standard hair-product orders, which has saved me countless hours.”
Common Tax Mistakes to Avoid
Many small business owners make mistakes when it comes to filing their taxes, but by seeking the right advice and learning from others, you can try to avoid them. I asked several small business owners what mistakes they’d made when starting out and what they do differently now.
Misclassifying employees
“My biggest early mistake was a costly one,” admits Julia North. “I misclassified independent contractors. When I first opened my salon, I had several freelance stylists who, by IRS standards, should have been employees. I assumed that because they set their own schedules they were freelancers, but as I was controlling how they performed their work, they were actually employees. It was an expensive lesson that led me to hire both a tax professional and virtual HR-person. After that initial mistake, I made sure to go through each person’s roles and responsibilities before classifying them.”
Overlooking deductions and credits
For Kristina Maccaro, owner and creative director at LoveLane Salon, not separating her personal and business finances was one of the initial mistakes she made when launching her business. “How you receive and spend money depends on how your business is set up (LLC, Corporation, etc.),” she explains. “Avoid confusion by speaking to an accountant to help you properly establish your business and bank accounts so that you are maximizing your deductions and tax benefits.”
Kristina adds that not having formal agreements with partners, employees, contractors, or vendors is another quick way to find yourself in trouble. “If you aren’t sure what to include, speak with a lawyer,” she recommends.
Overstocking on supplies
Dana Fiore advises avoiding hurting your profit margin by overstocking your salon with supplies. “On the inventory end, salons use a lot of supplies,” she says. “It’s so important to purchase only what you need or will use in the immediate future. Over-purchasing products (like excessive amounts of hair color bottles) causes you to overuse funds on items that aren’t bringing in a profit and can just sit on a shelf, unused, literally for months.”
Forgetting to file quarterly tax returns
Finally, a major mistake to avoid is not filing your quarterly tax returns on time. If you’re not planning to use an accountant, make sure you’re crystal clear on quarterly tax deadlines. You may be charged a penalty for not filing your accounts on time, so it’s essential that you familiarize yourself with the four main payment periods.
According to the IRS website3, these are:
- April 15 for income earned from January 1 to March 31
- June 15 for income earned from April 1 to May 31
- September 15 for income earned from June 1 to August 31
- January 15 of the following year for income earned from September 1 to December 31
Hiring a Tax Professional for Beauty Salon Owners
Of course, one of the easiest ways to avoid common mistakes is by calling upon the services of an accountant. Not only will a professional be able to answer your tax-related questions throughout the year, but they’ll also advise you on tax-deductible expenses and remind you of upcoming tax deadlines.
“Working with a tax professional can be beneficial to your business. While your software system does the bulk of the record-keeping, it’s helpful to have access to someone you can call with specific questions or inquiries,” advises Dana Fiore. “Tax professionals can usually represent you during calls to the IRS or insurance companies. This extra helping hand will give you more time behind the chair to do what you love and less time waiting on hold to speak with a representative.”
Likewise, Julia North says working with a tax professional has been a game-changer, allowing her to focus on growing her salon and client base instead of being stuck behind QuickBooks. “My virtual tax consultant helped identify deductions I never knew existed — like section 179 expensing for salon equipment and tax credits for employee training programs (where they learned newer styling techniques),” she says. “Plus, they ensure we’re compliant with both federal and state regulations, which vary significantly in the beauty industry. I was a little shaken up after my employee classification mistake, so having someone ensure my taxes were in good order helped me sleep easier.”
Finding an accountant
In my experience as a self-employed person, I’ve found that the best way to find a qualified accountant was to ask my freelance colleagues and friends. I eventually decided upon an accountant that a good friend of mine had been using for a while, and I’ve been working with him and his team for years.
If this isn’t an option, do your research and due diligence to ensure your chosen accountant has up-to-date qualifications and accreditations. You should also shop around to find a monthly or annual fee that fits your budget. Be transparent about how you run your business and what you’ll need help with, and don’t forget that accountancy fees are also a taxable deduction.
Take Control of Your Taxes
There’s no doubt that the topic of taxes makes most small business owners want to run and hide, but unfortunately, it’s part of business life. Rather than avoid it, take control, take steps to understand it, and hire a professional if needed to make life a little easier for you. As a first point of action, add those quarterly tax dates to your calendar and start tracking your expenses. After all, every successful business starts with well-organized accounts.
- https://taxfoundation.org/research/all/state/local-income-taxes-2023/ ↩︎
- https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace ↩︎
- https://www.irs.gov/payments/pay-as-you-go-so-you-wont-owe-a-guide-to-withholding-estimated-taxes-and-ways-to-avoid-the-estimated-tax-penalty ↩︎