Do you work in a profession like cosmetology? Are you a stylist, esthetician, or both? This article covers important tax tips that can help you file a return and get your biggest possible refund.
Understanding your employment status
It’s important to understand whether you are self-employed or an employee because it will affect the tax forms you’ll receive and the type of taxes you’re responsible for paying:
A payroll employee works under the direct supervision of a salon owner or manager. At tax time, employees should receive a Form W-2. This shows how much you earned during the year, and how much of your income was withheld for taxes.
A self-employed (or independent) stylist typically rents a workstation in a salon or sees clients in an at-home setting. Self-employed professionals receive a Form 1099 from anyone who pays them more than $600 per year. If you rent a salon space, you might receive a 1099 from the salon owner (but not every salon does this, so it’s important to keep records of your own – invoices, receipts, etc.).
Reporting your income
When you’re reporting your total earnings for tax purposes, you should include these types of income:
- Service fees: Any money you receive for your services counts as income.
- Wages: If you work a second job where you are paid a regular wage, that is also part of your total income.
- Tips: When you earn more than $20 in tips for a given month, you’ll need to report and pay taxes on the total amount.
- Retail items: Do you sell beauty products in addition to your services? That counts as income, too.
Paying your taxes
If you’re employed, your employer will withhold a certain amount of income from your paycheck each pay period to cover your federal and state taxes.
But if you’re self-employed, you are solely responsible for paying your tax liabilities. Here’s a look at the different tax types you may need to cover:
Federal income tax
Your federal income tax rate depends on your filing status and your total income for the year. Everyone pays federal income tax, no matter what their employment status is.
State income tax
Depending on the tax laws in your state, you could be required to pay state income tax in addition to federal income tax.
Do you cross state borders to go to work? This affects your state tax filing requirement. Read more about living and working in two different states.
Self-employment tax is essentially how you contribute to Social Security and Medicare as a self-employed person.
If your net income for the year is more than $400, you will need to pay self-employment tax. The current self-employment tax rate is 15.3% (12.4% for Social Security + 2.9% for Medicare).
Quarterly estimated tax payments
When you are self-employed, money is not withheld from your paychecks for income tax, so the IRS requires that you make regular tax payments during the year, called quarterly estimated taxes.
You’ll need to make estimated tax payments if you expect to owe at least $1,000 for taxes after all withholding and credits have been subtracted. By making these payments, you can avoid a big tax bill (and some possible penalties) when you file your tax return. Learn more about estimated tax payments.
Deducting your business expenses
Tax deductions reduce your taxable income, so you pay less in taxes. To claim a business deduction when you are self-employed, the expense must be “ordinary and necessary” for the success of your business.
Keep track of the things you pay for during the year, including:
- Professional licenses: cosmetology license, business license, shop license, etc.
- Marketing expenses: website hosting fees, business cards, print ads
- Equipment: mobile payment processing, cell phone (also tablet, computer)
- Rent and other fees (if you rent a booth/chair)
- Supplies (foils, colors, shampoo, towels, shears, hair dryer, curler, solution, etc.)
You can write off these expenses when you file your self-employed tax return.
I’m a stylist and I make house calls. Can I deduct mileage for going to a client’s house?
If you’re self-employed, you can deduct the miles you travel to and from your client visits. But, if you rent a space in a salon, your miles to and from your work location are not deductible. Learn more about deducting business mileage.
I see clients in my home. Can I take the home office deduction?
You can claim the deduction as long as the space you call your “home office” is used exclusively and regularly for your business. For example, if you use a spare bathroom as a salon space and nothing else, that could qualify for the home office deduction. But if you set up a temporary salon in your kitchen, but it’s also where you prepare meals and eat with your family, that space would not qualify for the deduction. Learn more about the home office tax deduction.
This article is up to date for tax year 2021 (returns filed in 2022).