Tax Tips for Hair Dressers

Hairdressers may be self-employed or employees of salons.

Whether hairdressers are self-employed or employed by a salon, many of the tax issues are the same. Many hairdressers receive tips and incur expenses related to the practice of their profession. Often, hairdressers work at different locations or they may work both as independent contractors and employees. Tax tips for hairdressers, also called beauticians and cosmetologists, involve understanding what tax laws require for filing income tax returns and paying taxes, and what tax benefits are available for hairdressers.

Gratuities

Tips are given voluntarily to service workers, such as hairdressers, in excess of the amount of the service rendered, according the Internal Revenue Service. Under the IRS tax codes, tips paid to hair dressers as gratuities for services are considered wages and, therefore, are taxable income. Tips include cash, services, taxable benefits, goods and awards given as gratuities. Hair dressers should keep a record of tips earned and report the tips to management if employed. The IRS requires employers to report tips on Wage and Tax Statement, or W-2, forms. Tips are taxable even if not reported on the W-2 form. The IRS also requires you to report tips on your individual tax return.

Deductions

A business operated for a profit may deduct business expenses that are ordinary and necessary, according to the Internal Revenue Service. Ordinary expenses are common to your profession, while necessary expenses are helpful in your work. You may be able to deduct unreimbursed expenses, such as supplies and licensing fees, if you are employed by a salon. As a self-employed hairdresser, you can deduct many expenses such as supplies, equipment, business services, uniforms, license fees, business insurance, trade publication subscriptions and education or training related to your profession. If your expenses are more than your income, you may be able to deduct your net loss from your gross income when you file your annual return. Hairdressers who work out of their homes may be able to deduct home office expenses.

Recordkeeping

Hairdressers generate lots of receipts throughout the year. Because allowable deductions most often relate to the purchase of items or services, hairdressers can benefit from a well-organized system of recordkeeping, including maintaining a chronological record of expenses and receipt copies. If you work out of your home, keep business purchases separate from purchases for your home. You or your professional tax-preparer will need the receipts to complete your tax returns

State Taxes

Tax laws vary from state to state. Hairdressers should contact their local department of revenue for information about allowable deductions and state taxes. For instance, South Dakota requires that inventory purchased by a salon tax-free is taxed when a hairdresser uses the item to perform a service. Also in South Dakota, equipment is subject to sales and use taxes. However, the cost of renting a booth is not subject to sales or use tax paid by the salon owner. The hairdresser who is the booth renter, or independent contractor, is responsible for paying the sales tax on the booth rental as part of gross receipts. Your state might have similar tax laws relating to your work as a hairdresser.

References

• IRS.gov: The HOWs of Taxes -- Module 2: Wage and Tip Income
• Cornerstone Financial Solutions: What Can I Deduct on My Taxes?
• IRS.gov; Deducting Business Expenses
• South Dakota Department of Revenue; Beauty Salons and Barber Shops; March 2011

Resources

• IRS.gov: Schedule SE (Form 1040) Self-employment Tax
• Instructions for Schedule SE (Form 1040)