Beauticians, whether they are self-employed or employed by the salon they work for, have a variety of tax deductions to choose from that they can claim on their tax return. Using these deductions properly can reduce overall taxable income, which will effectively decrease tax liability.
Gifts for Clients
Purchasing gifts for clients is typical in this industry. According to Melissa Masters, Arizona Cosmetologist, "your clients are constantly buying you gifts, so you need to at least try and reciprocate on the major holidays." Gift purchases have a $25 limit that is deductible per person that you give the gift to per year. The employee and the self-employed can claim this deduction.
Purchasing Tools of the Trade
Along with gift-giving to butter up the client, tools are needed to cut and color hair. These tools are a deductible expense that can be claimed on a tax return.
The self-employed individual can deduct the full cost of the equipment in the year of purchase by taking a section 179 expense deduction. You also have the choice of spreading (depreciating) the cost over the useful life of the item and claiming a portion of the cost over several years. Which method you choose will depend on a myriad of factors, including your current overall taxable household income. Review all the factors affecting your tax liability before making this decision.
An employee can deduct the cost of the tools purchased if they do not receive reimbursement from the employer for them. They deduct the cost in the year of purchase; however, the deduction is limited to any purchase amounts that are exceeding 2 percent of their adjusted gross income.
Entertainment and Meals
While meals and entertainment may not be as important as tools are to the beautician, they can be a tax deduction if a business use can be claimed.
The general rule is meals and entertainment expenses are deductible up to 50 percent of their purchase costs, with limited exceptions. To claim the deduction, the purchase must be for business and the taxpayer will need a written record of the activity. Keeping the receipt with a written log on the back of who was in attendance and the business nature of the meal or entertainment will meet this requirement. These rules apply to the employee and the self-employed individual.
The Internal Revenue Service allows a tax deduction for any purchase necessary for the operation of a business. This applies to the self-employed and the employee. As long as you are able to justify the necessity of the expense, it can be deductible. The Internal Revenue Service will look at the expense through the eyes of a prudent person. If the expense would appear reasonable to a prudent person, you can deduct it.
How to Claim the Deduction
For the employed individual, expenses will be deducted on Form 2106. File this form with Schedule A on your personal 1040 tax return.
The self-employed individual will deduct expenses on a business tax return. The type of return they file will depend on the structure of the business. If it is a sole-proprietorship, a Form 1040 Schedule C is filed. A partnership files Form 1065 and an S-Corporation files Form 1120-S.
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