Answering Your Frequently Asked Tax Questions: National Beauty & Barber Tax Pro

KEY TAKEAWAYS: Tax season can be stressful for a barber or beauty pro, but it doesn’t have to be. There are incredible resources available to help you through tax season, including experts like National Beauty & Barber Tax Services. In this article, we share answers to frequently asked tax questions for beauty pros, courtesy of Malika, tax pro extraordinaire. 

Understanding beauty professional taxes can feel overwhelming, especially with unique expenses, deductions, and regulations that apply to the beauty industry. In this guide, we’ll answer common tax questions for beauty professionals to help you navigate tax season with confidence. From tracking expenses to knowing which deductions you qualify for, we’ve got you covered with tips to make managing your taxes easier and more efficient. Get ready to take control of your finances and set your business up for success!

Who is Malika From National Beauty & Barber Tax Services? 

Read this article to discover how you can take charge of your financial future with confidence. Malika, a beauty pro turned tax expert, shares simple and practical tips for managing your taxes. Learn how to organize your finances, track expenses, and maximize your deductions with easy-to-use tools like bookkeeping software.

Whether you're just starting out or have an established business, Malika's advice will help you keep more of what you earn and make tax season a breeze.

Your Frequently Asked Tax Questions: Answered by Malika

How soon do you need to start prepping for tax season?

Whenever your business year starts. I would say that, from day one of your business year, you should start prepping for tax season. Have a way to record sales coming in, track inventory that may sell, and track all expenses. It is an absolute nightmare to try to do that at the end of the year, even with professional help. At a minimum, do it every month–sit down, have an admin day, have your receipts, and get bookkeeping software. It’s never too early to start, so start on day one, for sure.

What are your top tax organization tips to avoid extra stress?

Get an accounting software. There are many simplified options, or you can go with a bookkeeping service–like what we (Beauty & Barber Tax Pro) do. That is going to take care of a lot of the problems. From there, you link your bank account, your bank account is linked to the services and products you provide, so all of that information flows into the bookkeeping software. Get a receipt scanner app, as well. If you stop and get gas, you can make a digital copy of the receipt and throw away the physical receipt. This way, you don’t lose receipts, and the ink doesn’t rub away.

Review your numbers every month. Even if you’re just writing things down, that’s a start. You have to prepare for slow seasons, and this helps you get an idea of what you should pay the IRS quarterly. That way you’re not stuck with a big bill at the end of the year. See our ultimate tax guide for beauty professionals for more information.

How does business expensing work for smaller beauty businesses that conduct business actions on everyday personal items to help save money?

It's prohibited to co-mingle business funds for personal use. Every financial institution has a way for you to ACH out yourself. That’s a matter of personal budget–what do you need to live off of?

Laptops are equipment. As a tax professional, I’m always going to recommend you buy that MacBook. We’re going to write that off over time–those are major purchases. Phones come down to business use. If you are a traditional hair stylist or barber, we can say 100% of that cell phone use was for the business, but if you don’t have another phone, the maximum is 50%. That requires tracking those bills–you need to have all of those bills at the end of the year. That’s an expense.

One thing that a lot of people say is, “I drive to work every day.” That’s not a write-off because it’s reasonable and ordinary that you don’t do hair at home–you have to go out. But when you are making trips to beauty supply stores and things like that, all of that is absolutely trackable. So utilize software and ACH yourself–that helps on many levels, especially if you’re a sole proprietor–you’re never too small for bookkeeping. Bookkeeping is just an organized way of knowing what’s going on in your business.

Do beauty and barber businesses qualify for deductions? What are the most significant ones that are overlooked?

They absolutely qualify for deductions. For high earners, tax planning is everything. One of the most commonly missed deductions is the cost of goods sold. This is basically the back of your business. You have backbar products, so every time you do a shampoo, that’s the cost of goods sold. When you have inventory and provide the hair coloring, that's the cost of goods sold. Retail products? Cost of goods sold. Say you had an amazing year–$100,000 plus–and your cost of goods sold between backbar, inventory, and retail was $40,000. That’s already a reduction.

Other missed deductions I see are business insurance–whatever that fee is each month is deductible–and self-employed retirement plans. If I have staff, I can offer them health insurance and write all of that off at the end of the year. See our guide on tax write-offs for more information.

As a new beauty or barber business owner, are there additional taxes and/or tax deductions that you qualify for when you have employees?

It’s great when you have staff-. You do pay out a lot, but the reward is beneficial. The additional things you’ll be able to pay out throughout the year are your worker’s comp–however your state aligns with that–unemployment compensation and payroll taxes. If you’re doing payroll with the entire staff, everyone is W2. 1099s do not have as much flexibility because the tax liability is on the contractor, not you. Upgrading to a staff is a fabulous experience. It can be daunting, but so many deductions follow.

Startup costs can also reduce your taxes. You can expense them over time, so if it takes you  $50,000 to start your salon, that $50,000 can help reduce your tax liability for at least five years. 

What is the difference between 1099, W2, and 1099-K?

You have 1099-NEC, which is non-employee compensation. This means no one withholds any taxes for you. A W2 is found in the salon where they tell you what to wear, what time to be there, how long to work, and they book your clients for you. Our industry has a thin line where we have contractors where we help them get clients and pay them commission–now the structure has to be different because a portion of their earnings goes back to the house. They should be getting a 1099-NEC to show they had that income.

You also have 1099-MISC, which is for people who rent chairs, salon suites, and so on. The 1099-MISC is going to show the rent you pay. 1099-K is actually a form that comes from our payment processors. The 1099-K goes on my tax return–Schedule C, if I’m a sole proprietor–and is included in my gross receipts. You may have multiple 1099-Ks depending on how many gateways and payment processors you use. With all of these 1099s, one copy goes to you, and one goes to the IRS.

Do tips count toward your income tax?

Tip income does count. The problem with payment processors is distinguishing which part was for service and which was for tip. We have to report the tip amount; it’s still considered income. If you have a great clientele, you want to include tips in your income. When you’re ready to grow and scale the business, it helps the numbers. On the back end, underreporting could make it difficult to get a business loan. On Schedule C, under “Other Income,” is where the tip amount goes.

Are small business loans and rent taxed? If not, can your payments toward them be deducted as business expenses?

Rent is absolutely a business expense. Even if you’re in a one-chair salon, it’s absolutely a business expense.

Business loans depend on their structure. If you’re a sole proprietor and you’re making payments, you can categorize them as miscellaneous expenses. If you’re an S Corp, that will get credited on your balance sheet as a liability against the business.

Business credit card payments are fully deductible, including the credit card interest.

If you want to continue your education with different classes/courses without becoming a full-time student again, how can you write the expenses off?

Continuing education will always be a deduction. Regardless of whether or not you go back as a full-time student or just go to a beauty show, it’s deductible. The tickets for the show are deductible, and the travel to the show is deductible. Lodging and meals, too. This goes back to that receipt scanner. When you go, take a picture of the receipt with the date, time, and name of the show written on it. Now, that’s a legitimate business expense. See our guide on student loan forgiveness for more information.

"Continuing education will always be a deduction–regardless of whether or not you go back as a full-time student or just go to a beauty show."

They don’t have to be artistry-specific. They can be business courses you take that help you elevate in your profession. Just make sure you’re always asking for a business invoice when you travel. I also suggest using your business cards when you are there. You always want to be able to verify your travel information in an audit. Having those business invoices is key.

If any of your social channels from your business are monetized and start earning money, how and where do you report it?

You report it as “Other Income” on the Schedule C. I would suggest that you open an additional account at your bank just for that income. That way, it stays separate, and you can clearly identify it. For content creators, have one payment gateway and make it consistent.

What tax advice would you give seasoned beauty and barber professionals who want to optimize their business filing next year?

Tax planning. Tax plan now. Start early. When you ask your tax pro to save you money during tax season, it’s usually so hectic that we can’t give you our best. Sit down with a financial planner and get with a bookkeeper. If you’re seasoned, you know you want to retire or sell the business in two years–we definitely have to get these numbers together to make it viable for a prospective buyer. The people who have been in business for more than two years–get your personal budget, tax planning, and retirement planning together. That will help us structure what you need to do as a business owner to pay the least amount of money in taxes and create the future you want.

What tax advice would you give beauty professionals who just started as a W2 employee, those who will soon start a business, and those who work a 9-5 but are part-time in the industry?

For independent people, you need an accountant or a bookkeeper from the very first dollar that you make. Get a dream team–your accountant, mentor, lawyer, and marketer.

For W2 newbies, make sure your withholdings are correct. You need to know how much you can make before you’re taxed. It’s your job to know how much should be withheld. As soon as you get your hourly rate and do your onboarding paperwork, go to the IRS withholding estimator. Put in your hourly rate and the hours you work. That will tell you exactly how much should be withheld.

Everything we’ve stated for full-time independent contractors applied to part-time. As long as you make over $600 doing this, it’s considered a business. 

Taxes are not scary. The IRS is not scary. What’s scary is being disorganized in your business because you can think you’re up and go bankrupt without knowing why. It’s easy for us to spend excessively. We want to make smarter decisions with our profits.

We hope you enjoyed this interview with Malika. Wanna keep up with her and stay in the know about tax time? Be sure to follow her on all her social media channels, including Facebook, Instagram, YouTube, and TikTok. 

Psst. Don't forget to subscribe to Elite Beauty Society so you don’t miss future interviews with insightful beauty pros.