Self-employed hairstylists have several tax deductions available to them. Some of the tax deductions could apply to many types of businesses, while others are specific to the work performed by hairdressers.
Independent Hairstylist Taxes
Self-employed hairstylists (either full- or part-time) who earn more than $400 in net income have to file an income tax return. They also pay an estimated tax each quarter.
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The self-employment tax is Social Security and Medicare tax paid by people who operate their own businesses. It is similar to the Social Security and Medicare taxes deducted from employees' wages. It totals 15.3 percent since self-employed people pay both the employer and employee shares.
Read More: Guide to Home Office Deductions
Calculating Net Profit or Net Loss
To determine whether the self-employment tax is payable by self-employed hairstylists, they need to determine whether the business has a net profit or a net loss for the year. If the expenses are less than the income, then the difference is profit and is taxable as income. If the expenses are higher than income, the difference is a loss.
Types of Tax Deductions for Hairstylists
Self-employed hairstylists use tax deductions to reduce their taxable income and the amount they pay in taxes. The more tax deductions they have, the lower their taxable income becomes.
Not all expenses can be claimed as a tax deduction. Tax deductions for hairstylists can be split into two categories:
- Business expenses paid for daily operations.
- Expenses paid to help grow the business.
Read More: What is the "Shoebox" Method of Recordkeeping?
Examples of Hairstylist Tax Deductions
What kinds of expenses can a self-employed hairstylist claim on taxes? Here's a list:
1. Tools and Supplies
These items would include shampoos and conditioners, hair dyes and straighteners and other hair care products. This category also includes scissors, combs and brushes, razors, towels, hair styling capes for clients and styling chairs. Hairstylists can deduct the cost of mirrors, sinks, hairdryers, hair curlers and comb-cleaning solutions.
2. Professional License
Hairstylists who are required to obtain a professional license to work in specific states can deduct the full cost along with any associated fees.
3. Continuing Education
If a hairstylist attends a training course or subscribes to trade magazines to learn new styles, the cost is tax-deductible.
4. Business Insurance
As a self-employed person, a hairstylist should have business insurance in place. General liability insurance protects the stylist if a client sues for injuries incurred while visiting the salon. Commercial property insurance covers the premises where the stylist does business and the stylist's tools, furniture and equipment. Business income insurance helps to protect against lost income if the self-employed hairstylist can't work because of property damage, like a fire.
The premiums are a legitimate business expense and are tax-deductible.
5. Office Expenses
This category includes the fees to rent a chair in a salon, if applicable. It also includes advertising expenses (printing and distributing flyers, website hosting and website design), tax preparation fees and income tax filing fees.
6. Home Office Deduction
A self-employed hairstylist who works from home may be eligible for the home office deduction. To qualify, the stylist must have a designated space where they see clients regularly. This space must not be used for personal or family purposes. In that case, the hairstylist can deduct ordinary and necessary expenses related to the business.
Consult an Income Tax Professional
Self-employed hairstylists should consult an experienced income tax professional to ensure they are deducting all the expenses they are entitled to when filling out their annual returns. They also want to make sure all their proposed deductions are allowed under the law.
Read More: How to Calculate Social Security Tax