As a professional in the beauty industry, you probably already know some of the most important parts about running a successful business.
Maybe you’re incredibly well-versed in how to perfect your craft, and perhaps you know the secrets to exploring and honing your creativity and business pragmatism. But, before you can slap an A+ sticker on your business savvy, it’s important to ask yourself a serious question: how much do you really know about insurance, retirement, and planning for your future?
We know what you’re thinking – reign it in, guys, I haven’t even had my coffee yet – but the fact of the matter is, when you’re working in the beauty industry, you need to have a good, solid plan laid out in front of you to protect yourself, your business, and help you to prosper in the long term.
So, what do you know about these things?
Do you have a plan in motion for your retirement? How about insurance – are all your bases covered? Your probably ready to go when tax season rolls in, right?
If you answered no to any of those questions – that’s okay. You don’t have to have a degree in business, insurance, or tax law to ensure that you’re fully prepared, and when you break it all down, it’s not as complicated as you might think.
While we can’t promise that learning about, researching, and planning for these types of things is going to be the most exhilarating part of your business, it’s definitely crucial. We want to make sure that you’re doing everything you can to be prepared, study up, and learn about how you can best protect yourself and plan for the future.
To do that, we laid a ton of relevant, helpful, and vital information that you’ll need to get prepared!
Check out our comprehensive guide below to get a better grasp on what kind of insurance you should be looking into, how you can start preparing for your future, and even some helpful tips for tax season.
Just came here for tax help?
No problem. Check our our complete tax exemption worksheet below.
When it comes to your future, we care – and so should you!
Let’s Talk Insurance, Preparing for the Future, and Saving for Retirement
The easiest way to talk about these kinds of topics is to just dive right in.
So, grab a glass of wine and rip off the band-aid with us while we get into saving for the future.
In this guide, we’re going to cover three main proponents that we believe are absolutely vital for your business: insurance policies, retirement planning, and taxes.
We know, we know – it’s probably all sounding super mundane and boring, but we promise that this kind of information is incredibly necessary to your personal and professional well-being. Without these types of plans for the future, you could be stuck without sufficient funds for retirement, in a tough legal spot without insurance, or even in trouble with the IRS for accidental tax mistakes.
While we can’t promise these three topics are going to be the most exciting information we ever give you, we can promise it’s incredibly worthwhile, super helpful, and vital to your career!
So, lets get to it. We’re kicking this party off with one our favorite topics – insurance!
Types of Insurance All Beauty Pros Should Have (And What They Are)
We’re going to ease you right into this with a little simple, need-to-know info.
Read up on the types of insurance policies you should have in the beauty industry and a snippet about what exactly they are and what they mean for you!
Health Insurance, What
You’ve probably heard of healthcare or health insurance, but we’re going to give you a quick glimpse into exactly what it is.
Healthcare insurance is a type of coverage that takes care of the cost of an insured person’s medical and surgical expenses in the event that something should happen to them. There are two types of health insurance: private health insurance and public (or government) health insurance, but there are several forms of each of these, including fee-for service-plans, managed care plans, health maintenance organizations (called HMOs), preferred provider organizations (known as PPOs), and point of service plans.
Typically, self-employed people in the beauty industry, or those who work for small salons or studios, will not have the salon group medical benefits and coverage, making it necessary to look elsewhere for personal health care coverage.
Life Insurance, What
It’s likely that you’ve heard of life insurance as well.
This is an important type of insurance to consider for anyone, not just for people in the beauty industry.
Life insurance is a type of insurance that pays out a certain amount of money after the death of the insured person. The way this typically works is that you (the insured) will pay a premium for your life insurance, and then, upon death, an agreed upon lump-sum payment (called the death benefit) will be distributed to your beneficiaries. There are several types of life insurance to consider, such as universal life insurance, whole life insurance, term life insurance, and more. The cost of your premium will depend on your goals and your needs.
Professional Liability Insurance, What
Professional Liability Insurance is a form of risk management in which the insured cosmetologist can be protected and relieved of the financial responsibility of a potential loss.
What does that mean?
It is designed to protect beauty professionals from claims arising outside of their direct professional skills. “Liability” encompasses general liability, professional liability, and product liability.
Read on for a description of each, that as a professional, you need to be covered for.
General Liability: Protects against claims of bodily injury and property damage.
- Scenario: A client slips on water as she gets up from the wash bowl chair. Whether she says something at the time of the incident or not, a week later she files a claim for a slip-and-fall injury.
- Other Scenarios of General Liability Claims:
Professional/Product Liability: Covers claims filed by clients claiming to suffer injury caused by negligence of the professional and or the products used during the service.
- Scenario: A week after an appointment, a client receives a cuticle infection from a nail treatment.
Other Scenarios of Professional Liability Claims:
Elite Beauty Society has created a complete guide with all the deets on liability insurance that can be found here: https://elitebeautysociety.com/beauty-insurance-guide-2018
Business Owner Policies, What
A Business Owner Policy is a package policy designed to guard against risks associated with small businesses. It combines property insurance, liability coverage, and more, into one convenient policy.
As a salon or spa owner, you have an obligation to your employees as well as to the business you've worked so hard to build.
There's a lot at stake when it comes to your business — from financial investments to client contracts, employees who depend on you, and a host of other commitments that keep your enterprise in motion.
What if a break-in leaves you without cash, or a virtual break-in freezes your credit—and you can’t buy the supplies you need? And what if you received an email from a trusted client that included a virus, wiping out the contact database you’ve worked years to build?
If something were to happen to it, could you cover the losses?
Well, with the right business policy in place, you can. Because, hey, mishaps (can and do) happen. but having a solid plan can mean the difference between easy-peasy and major uh-oh. Without the right coverage, or the right level of coverage, you may be personally liable for damages.
In addition to the basics, popular coverages for any Business Owner Policy include:
Elite Beauty Society has partnered with the leader in Business Owner Polices, Esurance, to provide you with the best coverage options possible.
This type of insurance is a little more niche than the few others we discussed.
Disability insurance is a type of insurance that covers the insured’s (again, that’s you!) salary if they become disabled and are unable to work at their job.
According to the Council for Disability Awareness, this is much more common than you might think, claiming that 1 out of every 4 workers will become disabled at some point in their career.
There are two types of disability insurance – short-term and long-term. Both types will cover a portion of your monthly base salary (up to a cap, of course), but they do differ in the length of coverage, the benefits you receive, and waiting period for payment.
Why Do I Need These Types of Insurances?
Professional Liability Insurance, Why
Whether you are renting a booth at a salon, work in your own beauty space, or work as a freelance beauty professional, purchasing a beauty insurance policy supports and protects your career wherever you go.
Liability Insurance provides peace of mind and assurance no matter where your career takes you as an artist. A little insurance knowledge can empower you as a professional to make the right decision when it comes to researching and purchasing a professional and general liability insurance policy.
In any industry, accidents are inevitable and unpredictable.
The average claim in the beauty industry is $5,500! Without insurance, this cost would come 100% out of your own pocket.
By carrying professional liability insurance, you can transfer the risk of monetary loss to your insurance provider. You no longer carry the emotional stress of figuring out how you’re going to pay a claim or defend yourself during the investigation period.
It only takes a single lawsuit or claim to bankrupt you. We live in a litigious society.
You are a professional with specialized training and certification. Though you may not be ultimately responsible for an injury or damages, but your role makes you a target.
Even baseless claims require you to defend yourself. Legal defense can be costly.
Health Insurance, Why
If you’re reading this to yourself and thinking something like, “I’m a fairly healthy person, I probably don’t need health insurance – especially since my salon doesn’t provide this for me,” then we’ve got some news for you – everyone needs health insurance, you especially.
Think about it.
You stand on your feet all day. You work long hours. You probably work with sharp objects. You work around people.
All of these are liabilities that could add up to you getting injured or sick, and unfortunately, a trip to the ER or to the doctor is pretty expensive. Investing in the right kind of health insurance can be an affordable way to give yourself peace of mind as well as a safety net that’s there for you when you need it.
There are tons of sources for learning more about the types of plans you need, as well as establishments that can help you find the right plan – public or private – to fit your budget needs.
It’s hard to pin down exactly how much health insurance coverage costs because the premium you pay is not going to be the same as someone else. It all depends on factors that affect you, like your age, pre-existing medical conditions, family history, liability, gender, age, profession, previous insurance, etc.
However, according to Value Penguin, some HMOs average around $230 per month, while POS, PPOs, and EPOs average $244, $251, and $254, respectively. Again, this will all depend on the factors specifically affecting you!
Life Insurance, Why
It’s a morbid thought, but unfortunately, everyone needs life insurance.
Why, you might ask? For security. For your family. For peace of mind.
The last thing you want – in the case of your untimely, unexpected, or unfortunate death – is for your family, or your business, to be saddled with financial burdens they, or it, are not prepared to shoulder. While this isn’t necessarily specific to the beauty industry, it can certainly be a helpful, additional coverage for you to invest in.
The beauty industry isn’t necessarily riskier than other industries, but there are certain risks that are associated with the work you do. It pays to be covered, especially to help cover immediate costs for your dependents. Life insurance protection can help to pay off mortgages, help to fund dependent retirement, provide charitable bequests, and aid you in estate planning.
This is something that folks in the beauty industry should especially consider if they have families.
If you’re interested in acquiring life insurance, look into highly-rated insurance companies that can offer good prices, excellent service, and have stellar ratings. When it comes to life insurance, you want to be comfortable with who you’re choosing to do business with. You’ll likely have to take an insurance health exam, fill out forms, apply for the insurance, and work through your quotes with your provider.
As a note, the younger you are when you acquire your insurance, the cheaper it will be – so if you need this type of insurance and are strongly considering it, we suggest you act fast!
Disability Insurance, Why
This type of insurance is going to be necessary when you experience and unforeseen injury and are unable to contribute income like you were once able to. You might be young, healthy, and spry, thinking that nothing can stop you – and in truth, you might be just fine.
But in the off chance that you accidentally hurt yourself, temporarily or permanently, you’ll want to be covered to ensure that you’re going to be able to earn a living.
According to the Council of Disability Awareness, more than 1 in 4 workers will experience disability for at least 90 days (or more) before they reach their 60s. This doesn’t always mean incredibly tragic and intense instances of become paralyzed, losing a limb, etc. --- this can include things like back injuries, heart attacks, cancer, and other illnesses.
In other words, it’s more than necessary to have this type of coverage.
The price of your disability insurance policy will generally depend on your age and health, your gender, your tobacco use, your occupation, your occupation (you’ll pay more in a higher risk job), your income, and the length of benefits you hope to include.
You can buy individual disability insurance from several private companies like Colonial Life, Ameritas, Dion Demand, Northwestern Mutual, and many, many more!
Before we dive into more about future planning, it’s worth it to note that most of your insurance premiums can be deducted on your taxes! Make sure you look into this when it comes time for taxes.
How You can Budget & Plan for Your Retirement
As much as we hate to acknowledge it, there’s going to come a time where our employment status will change.
While we understand that in the here and now, you’re entirely happy with your job, relish the challenges of your industry, and find the work stress invigorating, a hard truth remains – one day, you’re going to want to retire.
Another harder truth comes right after that one – without a plan in place, your retirement likely isn’t going to be as pleasant as you hope it is.
Having money set aside for your future is vital for anyone, no matter what industry they’re in.
Admittedly though, it can be a bit tougher for people in the beauty industry when it comes to retirement plans.
Often, folks who immerse themselves in the beauty industry end up owning their own salons or working at smaller salons (this isn’t always the case, but it’s true for a majority of people in the industry) -- often, this makes providing retirement programs and benefits for employees, and even for yourself, incredibly difficult.
We’ve got good news though, you can definitely plan for your future --- it’s just going to take a little extra attention to detail, care, organization and planning.
We’re sure you’re up for it! We’ve laid out a few specific tips that we think can help you with your retirement plans. With them, can start putting aside money for your future and firmly cement a comfortable lifestyle in place for yourself.
It’s hard to save money for retirement when you’re simultaneously draining your bank account to pay off various debts.
Before you can really get into saving up for your future, you’re going to need to work toward being debt-free. We’re going to make an important distinction, though – we don’t mean to imply that you shouldn’t start saving for your retirement if you’re still paying off debt, you should start as soon as you’re able.
However, it’s going to be a lot easier to save up once your debt is paid off.
While it might seem like a way to delay your retirement savings, it helps to consider this a necessary step toward building up funds for your future – without debt, you can invest much more into your retirement plan.
We love starting our retirement saving tips off with this one because it’s such a simple, but necessary step – you need to do it, but it’s an easy thing to get the ball rolling (and won’t stress you out as much as the next step, considering retirement investment options).
Simply start by establishing a savings account. With an established savings account, you can begin to allocate money to it specifically for your retirement fund. Decide how much you want to put in your account and how often. Maybe you’re better at managing small amounts every week – try that!
Perhaps you’d like to take a crack at a specific percentage of your paycheck every month? Give it a go!
No matter what, ensure you’re picking out a savings account that makes sense for you. Look into options for ease of access as well as accrued interest, and a low initial investment.
If you’re lucky enough to work in a salon or studio that offers 401ks or retirement plans, that’s a beautiful perk!
Look into these, make sure they make sense for you, and enjoy the ease of this procedure.
If your salon or studio doesn’t offer these things, or you’re a self-employed person, that’s okay, too! In fact, over 35 percent of private-sector workers don’t have access to an employer-based plan. The good news is that there are several different retirement investment plans out there that will work wonders for you and your future!
Individual Retirement Accounts, commonly called IRAs, are a specific type of investment account that’s dedicated to helping you save for retirement. In other words, they’re the ideal starting place for folks who are starting their retirement saving journey.
There are several types of IRAs that people can look into, but the two most common are traditional IRAs and Roth IRAs. A traditional IRA offers you a tax deduction for the tax year in which the contribution was made while a Roth IRA gives the investor (that’s you!) the chance to invest money after taxes and then take the contributions and earning out in an environment free of taxes.
It’s worth noting that contributions you make to your IRA are typically tax-deductible, too – that’s a piece of info you might want to hang on to later for our tax section!
IRAs can be opened at all kinds of financial service providers, like credit unions, banks, big mutual fund superstores, brokerage firms, and more! It’s a worthwhile idea to start learning about the kinds of IRAs out there, the risks associated with each, and the costs of each! There’s no guaranteed formula for IRA success – it’s going to depend on your income, your goals, and other details personal to you, so make sure that you’re choosing a plan that makes the most sense for you and your plans.
Don’t be afraid to consult with a professional to learn more about IRA.
Are you reading this as a fresh-faced, dewy-eyed, beauty-industry newbie? Good!
Start your retirement fund. Are you diving into this guide as someone who’s just a decade or so away from retirement? That’s good, too!
While it’s always good to start early, there’s no bad time to begin saving, and even if you’re just a few years off from retirement, saving money for your future is never going to be a bad choice.
The beautiful thing about saving for retirement is that there’s no bad time to start.
All of that to say, wherever you are, whatever age you are, and whatever point you’re at in your career, just get started saving for your retirement right now!
We like to be super clear about this point, especially when dealing with confusing things like financial planning, taxes, retirement and more – it’s okay to ask for help.
While you’re probably perfectly business savvy, it’s okay to not be as jazzed and in-the-know about retirement plans as you are about balayage and matte lip techniques.
If you knew everything about retirement planning and taxes, you probably would have gone into those industries instead of the beauty biz.
With that, we hope you understand that it’s often a really good idea to talk to a professional who can help you best set up a system that saves and grows your retirement money. You don’t have to consult with the priciest financial adviser out there, just pick someone who knows their stuff, understands your goals, and is happy to help you for a price that makes sense to you! Asking for help on these matters and talking to professionals can only benefit you and your business in the long-run.
Taxes and How to Claim
We know it’s hard to focus on anything else but running your business, being there for your clients, and keeping on-trend in the beauty industry, but adding in a dash of tax savvy to your list of priorities can seriously help you come tax time – we’re talking money saving and some serious write-offs.
More than that, though, you need to make sure you’re filing correctly and counting your exemptions correctly to keep your business’ legal status all clear.
That’s why we put together an awesome mini-checklist that you can run through to ensure that all of your tax affairs are in order. Check out our list, as well as some helpful tips and tracks we tacked on, in to make sure you’re prepared!
This is the absolute first thing you need to figure out when it comes time to file your taxes, so understanding it as soon as possible can only help you plan for tax season. You’ll need to consider exactly what kind of employment status you have.
For example, do you work for yourself and run your own salon or studio? That one’s easy – you’re self-employed. But what about if you work at someone else’s business? Are you an employee? Are you an independent contractor? These two things might seem similar in your day-to-day life, but come tax season, they both incredibly different.
In fact, all of the employment status categories require different forms and considerations. A self-employed person will pay a self-employment tax, whereas an employee would not. If you’re up in the air about whether or not you’re an independent contractor versus an employee, just consult the form your salon gives you around tax time. If you receive a 1099-misc, then you’re an independent contractor. A W-2 would likely make you an employee. Overall though, it’s best to be clear about these types of things from the start of your agreement.
Figure out your status so you can the correct tax forms, figure out what kind of deductions you can look into, and how you should file.
Whether you’re a creative genius who doesn’t have a system for their craft or super-organized, neat freak, you’re going to need to ensure that your filing system, documentation, and tax information are incredibly ordered.
Make sure that, at the beginning of the year, you’ve put together a fool-proof system that has room to keep everything in check – your employee status information, your receipts, your day-to-day information, your income documents, etc.
All of the relevant information you need for taxes should be kept in one place, but above all, it should be kept organized so that you won’t have to sort through a rat’s nest of documents to get the information you need.
Trust us, come tax time, you’re likely going to be dealing with a ton of stress – don’t add to the madness with a rousing game of “find the w-2 needle in the giant, paper-waste haystack.”
This part is actually super fun because this is the part we all love – saving money.
It’s important to really understand what’s deductible and what’s not when it comes time for tax breaks, so we’re going to try to paint you a clearer picture of what sort of things you can claim.
Overall, consider the money that you invest in your beauty business (let’s just say cosmetology for the sake of simplicity) as something that qualifies for a tax break. So, the upfront costs for setting up your salon – all the equipment, the work-space, the furniture, the technology, etc. – could potentially qualify for a tax break and dramatically reduce the taxes that you owe.
Do you run your business? You’re definitely eligible for several tax breaks.
Further, if you run your business out of your own home, you could even qualify for home office deductions and reduce your rent, your utilities, and maybe even your homeowner’s insurance. Other things like licensing fees (which you definitely paid to get your license), business-related insurance premiums (Hello, that’s exactly what we talked about earlier in this guide), and legal fees can also be deductible!
You’ll want to consider other factors that are associated with running your business, such as marketing tools, ad campaigns, your day-to-day tools (like hair color, shampoo, combs, scissors, foils, etc.), your website, IT support etc. All of these things are vital to your business and could qualify for several deductions – this is why keeping all of your paper (organized!) is going to matter so much.
Remember, there’s no problem with asking for a little tax help.
Working with an accountant, or even working with an online program that guides you step-by-step through your deductions, could be a great secondary choice to ensure that you’re thinking of all the deductions possible and filing them correctly.
If you didn’t know, you can qualify for tax benefits based on the training courses you take and the personal development you undergo as a professional.
For example, want to take an advanced course on blonding and bleaching? Do it – you can probably claim an education tax credit for it (especially if you’re taking the course from a recognized institution).
It’s even possible that the money you spend on tuition could be tax exempt. Further, you could potentially claim continuing education costs, qualifying you (possibly) for another tax deduction!
Of course, we recommend checking in with the institution (and perhaps your accountant) first, but this could likely be the case!
Listen, we recognize that you might not be made of money, so we don’t mean that you should pay a ton of hard-earned cash to an accountant to tell you things you already know. We do think that if you find the tax thing a touch confusing, it always pays to ask an expert for help.
Our best advice? Start on this early.
This is for two reasons. Firstly, by starting on it early, you’ll get a better idea of what makes sense to you and what doesn’t, and secondly, if you know early on that you’re going to need some assistance, you can set aside money specifically for tax advice. This will help with the financial burden later on if you find that you definitely need to consult with an expert.
Our Final Thoughts
If you’ve taken anything from this guide – aside form our super quick wit and obvious love for the beauty industry – we hope that it’s a new-found appreciation for preparedness.
As we said, you can’t always predict what’s going to happen, so investing time, energy, and money into a few strategies and practices to promote preparedness is always the smart choice.
With that, we just have a few final thoughts.
- Make sure you’re looking at all of your insurance options and getting the best bang for your buck, but don’t just purchase the option the most financial sense – be covered in the best sense of the word (that fits your budget).
- As much as you probably don’t want to think about retirement, it’s time to start thinking about retirement. Make sure you’re coming up with a plan of action that fits your needs, your budget, and your future wants and desires. Don’t’ put this off! The sooner the start, the more benefits you can expect to reap when you decide to finally retire.
- Finally, be overly-prepared for tax time. Consult with your friends for free, stay organized, start early, and try to understand as much about deductions as you can. In the end, don’t be afraid to ask for help. Taxes can be daunting, and more than that, you’re required to do them right. Make sure you’re taking care of yourself and your business!
Even though this kind of information can be a little dry and a little boring --- especially when you compare it to the other amazing, interesting parts of your career – it’s incredibly crucial to take care of these things.
Above all, just remember, without preparation, you might be in bad spot when it comes time to better build your business, retire, or even pay your taxes. Investing time now into understanding and planning is only going to make you better at what you do! Good luck!