Hairdressers and cosmetologists may find themselves in a variety of tax situations from one year to the next. People in those professions offer a combination of services and retail goods and may be employees or self-employed. Expenses may range from station lease to purchase of laundry equipment. Each situation will require a slightly different tax strategy.
Employed or Self-Employed
Your tax strategy will be determined first and foremost by your employment status. Most hairdressers are self-employed because it is the most practical situation for both the shop owner and hairdresser. Both may write off expenses directly on Schedule C. As an employee, on the other hand, you must be able to use Schedule A (itemized deductions) to deduct work-related expenses.
While an employee will receive a regular hourly rate or salary and be paid at designated intervals, a self-employed hairdresser will only receive pay for individual services he personally provides. Depending on the arrangement you have with the shop owner, you may also receive a percentage of the profit on shop merchandise you sell and possibly a kickback from the shop's cosmetologists for referring clients to them. The income may all be funneled through the shop owner on a single check or be paid separately from each source. Each hairdresser should have a designated place and manner to record the income, even if that is simply on a legal pad. Cash tips and other gratuities are taxable income, too, so the Internal Revenue Service (IRS) expects you to report them.
How to File Taxes
Report W-2 wages on line 7 of Form 1040. Expenses that relate to W-2 wages will be deducted on Form 2106, which flows to the Schedule A. Income reported to you on a 1099-Misc form should be recorded on a Schedule C when you file your tax return, as should the related expenses. It is entirely possible that a hairdresser may be an employee at one location and self-employed at another, so you may need to file both types of forms with your tax return.
This is where things can be very different for a hairdresser than it is for other professionals. You may be leasing your station from the shop owner for a flat monthly fee or you might be paying the owner percentage of the income you bring into the shop. A flat monthly lease can be deducted on the "rent or lease" line of the Schedule C. Some shop owners will issue a 1099-Misc for the gross amount of your earnings, without deducting the percentage they kept for themselves. If that happens, simply claim the entire amount from the 1099 form as income, then deduct the percentage kept by the shop owner as "rent or lease" on the Schedule C. In this case, you should issue the shop owner a 1099 each year for the percentage they kept. It is important that you keep good records that show the gross amount you earn each month and the amount kept by the shop owner.
If you manage your own inventory of hair products, you'll need to report the total sales on your Schedule C. You will also need to take a year-end inventory that values remaining items at your cost. Try to sell off as much remaining inventory as possible at the end of the year, because you cannot deduct ending inventory as an expense. In most cases the shop owner buys the inventory and simply gives each hairdresser a percentage of the profit for items she sells. If that is the case, you will simply need to claim the income from that additional source, but you won't need to keep track of the inventory at all.
The shop owner may deduct a utility allowance, laundry fee or other fees from your pay, regardless of whether you are self-employed or an employee. You may simply pass these fees along on your tax forms as expenses against your income. If you buy your own towels, curling irons and other reusable supplies, these too can be written off if they have a useful life of one year or less. Don't overlook deductions for sticky notes and other office supplies. Items with a longer useful life, such as a washer, dryer, computer or printer, should be depreciated using Form 4562.