As an esthetician, you may write off many of the expenses associated with operating your business on your federal income taxes. Business expenditures, though necessary for business management, can impose a significant financial encumbrance on a small business owner. Federal tax deductions help ensure you don’t overpay the government for the business income you use to continue operating in your profession.
The expenses you incur directly associated with the daily operation of your esthetician business are tax deductible. For example, the money you pay for rent, salon insurance and utilities qualifies as a deductible expense, as do funds you use to help replenish salon consumables, such as skin care products, towels and sanitation products. You may even deduct the money you pay an accountant to professionally track and prepare your business income taxes.
IRS Publication 970 says that you may deduct educational expenses related to your business for you and your employees. In other words, if you live in a state, such as North Carolina, that requires minimum continuing education hours every year to maintain your esthetician license and registration, you may deduct the continuing education costs on your federal income taxes. You may also deduct the fee you pay your state’s board of cosmetology for renewing your esthetician license.
Though many of your esthetician business expenses qualify for a tax deduction, the IRS requires that you capitalize some costs – particularly those you incur during the startup phase of your business. IRS Publication 535 says that the three types of costs you must capitalize include startup costs, equipment costs and improvements you make to your business. Though you cannot take a tax deduction for capitalized expenses, you may be able to recover some of the expenditures through asset depreciation, amortization or depletion deduction methods.
If you do not own your own esthetician business, but instead work as an employed esthetician for another person, you will not have an operational expense tax deduction. You may, however, deduct any business expenses you paid for during the tax year that your employer did not reimburse you for. For instance, if you purchased your own supplies without receiving a reimbursement from your employer, you may deduct your out-of-pocket costs as an employee business expense on IRS Form 2106. Additionally, though you do not have as many tax deductions as an independent esthetician, you benefit as an employee from employer-paid Social Security taxes and unemployment benefit eligibility.