The self-employed hairdresser can deduct health insurance premiums at 100 percent of cost. According to the Internal Revenue Service this deduction is "an adjustment to income" on the front page of your personal 1040 tax return.
If an employee pays for health insurance premiums, she can also take this deduction. The IRS allows an employee to deduct these premiums as long as deductions are itemized on 1040 Schedule A. Once these expenses surpass 7.5 percent of adjusted gross income, they become deductible.
Whether self-employed or employed, a hairdresser is required to provide her own tools. According to cosmetologist Melissa Masters, "It is an industry standard to be expected to provide your own shears and other cutting implements." These equipment purchases are deductible for tax purposes.
A self-employed individual can depreciate the equipment over its useful life or take an immediate deduction of the full cost with a section 179-expense deduction. Take this deduction on the business return of the taxpayer. The type of return depends on the entity structure at its inception. A sole proprietor or LLC will file Form 1040 Schedule C, a partnership will file a Form 1065, and an S-Corp will file a Form 1120-S.
An employed individual needs to deduct her equipment purchases on Form 1040 Schedule A as a miscellaneous deduction. As with the health insurance deduction, it is limited for the employed individual. Take this deduction for any expense that exceeds 2 percent of adjusted gross income.
Automotive expenses are deductible for both the employed and self-employed hairdresser. In both cases, keep mileage records to separate personal and business expenses. Take a deduction for a proportional amount of the actual business expenses incurred or use the standard mileage rate. The standard mileage rate is simply multiplied by your business miles to arrive at a deductible cost. This rate is subject to change and determined by the IRS for each year. For 2010, the standard business mileage deduction rate is 50 cents per mile and 51 cents per mile for 2011.
The employed individual will deduct expenses on Form 2106, while the self-employed will use the business tax return as noted above.
Meals and Entertainment
For both the employed and self-employed hairdresser, meals and entertainment are deductible at 50 percent of their costs, with a few exceptions. Expenses that the clients of the self-employed or the employer of the employee reimburses are deductible at 100 percent. This helps to offset the income from the reimbursement.
The employed will again use Form 2106 for these expenses and the self-employed will deduct them on an individual business return.
Gift giving is common practice in a salon environment. Gifts are deductible to a limit of $25 for each person you give to per year. If an employee has no other business expenses to deduct, report these gifts directly on line 21 Schedule A of your 1040, otherwise use the Form 2106. The self-employed will deduct their gifts, subject to the $25 limit on a business tax return.