Few things are as un-fun as preparing salon tax forms, filing salon taxes or paying them!  There’s a lot to remember and even a small mistake can cost big bucks – not to mention the stress of dealing with the IRS.  Here are 6 salon tax tips that can help you save money – and your sanity – when tax time comes again.

The tax code is complex!  Let’s take a look at some of the most common mistakes salon owners might make when doing business taxes.

6 Salon Tax Tips that Save Money and Provide Peace of Mind

1. Make Estimated Salon Tax Payments Monthly – Not Quarterly

Make your salon’s estimated tax payments on a monthly basis, for two reasons; it’s easier, and it’s smarter!

• It’s easier. Breaking down your salon tax payments into smaller chunks makes it easier for you to come up with the payment; and,
• It’s more closely aligned with your own salon sales trends and revenues. As the month goes along, you’re going to know whether you are having a great month that’s going to leave your salon accounts cash-full (and necessitate that you set aside more money for taxes) or a slower month where your obligation will be smaller.

The more closely you can align expenses – including your estimated salon tax installment payments – the more you can help to create a more consistent cash flow for your salon or spa.  Paying closer attention to cash flow may also help you identify areas where you could save on expenses or increase profits.

These next three salon tax tips will help you keep more money in your own pocket.

2. Be Diligent About Keeping Receipts

To make it easier on yourself, get a set of folders or other system so that you can just keep them by expense category right out of the gate.  If you don’t want to go through your receipts to identify potentially deductible expenses or tally them up, assign the task to someone who will!  Work in trade or pay a high school math whiz or future accountant-in-training to help you on a part time basis.

Or at least keep as many receipts as possible, and if you miss some…

Remember this:  Just because you don’t have a receipt doesn’t automatically mean you’re going to miss out on a tax-saving deduction or credit.  For instance:  Let’s say you spend $2000 a month on supplies, but for a couple of months you didn’t keep all of them for whatever reason. Simply estimate your supplies for those two months based on your expense for the other ten months.

IRS guidelines allow you to estimate salon expenses this way if you have as little as three consecutive months, and those three months show a consistent pattern or relationship to your gross income.

Small deductions missed here and there due to lack of receipts can quickly add up.  When you include more expensive operational costs like salon supplies or cleaning help, you might be able to save thousands more on your salon’s tax bill.

When we work with salon and spa owners including booth renters, salon suite owners, massage therapists and other independent beauty industry professionals, we have a long list of potential deductions to explore. By engaging in some simple questions and answers we usually find other expenses you overlooked or didn’t even know could be deducted from your salon taxes.   (Secretly, this is the real fun of what we do; leaving more money in your pocket, and LESS in Uncle Sam’s!)

3. Choose the right legal entity for your business

Just choosing the right entity to use for your Salon and Spa business can save you easily $5,000 a year, every year.  For salon suite owners, booth renters, massage therapists and other self-employed salon pros, often simply converting your sole proprietorship or single-member LLC to a Subchapter-S Corporation allows you to cut your self-employment tax in half!

On a net income of $50,000, it’s a $6,500 savings right off the bat, and that doesn’t include additional tax savings due to expenses that can be fully deducted through a corporation that are either non-deductible or only partially deductible to a sole prop. or single-member LLC.

Make the investment of time and money needed to consult with a CPA or salon tax attorney that has expertise regarding the different entities and corresponding legal and tax distinctions.  Ask lots of questions!  Just because an attorney or CPA is able to create an LLC or corporation certainly doesn’t mean he or she knows the tax and legal features of each entity type.

4. Dig Deeper: You could be missing some of these frequently over-looked deductions that are available to salon and spa owners, salon suite franchisees, massage therapists, estheticians and other independent beauty professionals; such as:

• Business and personal tax deductions that might apply to dedicated home office space
• Deductions for travel expenses, mileage, mix-use local mileage and trips out of town
• Salon supplies purchased for personal use at home before choosing to use with clients in the salon
• Salon furnishings which might not only include salon equipment and furniture used in your salon, but also used in your home office/work space
• Cell phone, Wi-fi and other technology tools, equipment and expenses

5. Look for ways to turn routine business into tax deductible expenses.

For instance, when it comes to mileage, try structuring your daily commute from home such that you make a business stop on the way to your salon and also on the way home. For example, stopping at a supply store on the way home gives you an additional deduction for those miles!

6. Focus your time and resources on the most profitable activities.

While that might not sound like a salon tax tip, it is.  If you find that you are doing a lot of administrative, marketing, bookkeeping or even tax preparation work that you could outsource in order to spend more time actually making money behind the chair, do it!  Those expenses will be deductible and you will be making the money you need to not only make your salon tax payments but become more profitable and grow!

Adapted, 6 Cardinal Tax Errors by C.P.A. Dennis Bridges.