Tax season is rapidly approaching, and it’s time to start thinking about the tax deductions you can take as a barber or hair stylist. While being an independent contractor often means business expenses will fall on you rather than an employer, it also means you can deduct those expenses from your taxable income. It may seem silly to tally up every comb or alligator clip you buy, but even the smallest expenses can add up over the year. You might be surprised how many things can be counted as a “necessary” or “ordinary” business expenses as a stylist - and how big of a dent they put in your total income. Ordinary expenses are the things like hair dryers, business insurance, or salon space that your business can’t do without. Necessary expenses can include things like continued education that can be helpful to your long term business growth. Here are five tax deductions hair stylists should know about, and how to make sure you’re taking them by the book:
1) Supplies and Equipment
The supplies and equipment you use to cut and style hair are tax-deductible. Examples of eligible equipment and supplies for hair stylists include the following:
Barbers can write off work clothes as well, but only if they can’t reasonably wear them when not working (think smocks). Keep all your receipts so you can easily justify your tax write-offs if you are ever audited. You should also remember to purchase your professional and personal hair products in separate transactions, so your personal items aren’t mixed with your professional items on your receipts.
One important thing to keep in mind is that if you purchase shampoos, conditioners and other products for resale, they are considered inventory by the IRS. You can only deduct inventory expenses as the inventory is sold, so don’t attempt to deduct these costs all at once. On the flipside, any products you use on clients are always deductible as business supply expenses. As with all other transactions, remember to keep a record of all transactions involving the sale of a product to a customer so you can track your inventory versus supplies.
2) Continuing Education
Licensed barbers and beauticians can write off any continuing education classes received to stay skilled and up to date in the profession. For you, this may include any professional classes or educational events you go to after you’re a licensed stylist. You can even write off any applicable lodging, transportation and meal expenses incurred while attending training courses for your profession. You can also write off barber school expenses if you are married and earn no more than $160,000 annually (filing jointly) or if you are single and earn no more than $80,000 annually.
If your state requires barbers to maintain a license (and most states do), you can write off your licensing fee. This includes both the initial fee and all subsequent renewal fees and any costs associated with them. You can also deduct fees for any local business licenses or permits you’re required by county, city or state law to have.
4) Operating Expenses
Barbers have a variety of operating expenses, and these can be written off as ordinary expenses because they’re required to operate the business. Here are examples of common operating expenses for hair stylists:
Dry cleaning (if the uniforms require dry cleaning)
Booth space (when applicable)
Monthly rent (when applicable)
Keep in mind that if you have any employees, you’re required by federal law to withhold taxes from their paychecks. You must also pay your (the employer’s) share of Medicare and social security taxes. Be careful to accurately report all taxable income and fill out the appropriate income tax form. Your accountant can help you do this properly.
5) Business Insurance
Like all other businesses, barbershops are required to have insurance. There are many different types of insurance you can purchase for your shop. Business insurance can protect you if a client is physically injured on your premises, but they can also protect you from clients threatening not to pay for a haircut they’re not pleased with, or suing you for hair damage. These are some of the most common types of insurance barbers and hair stylists purchase for their businesses:
General liability coverage: This is one of the most basic types of insurance that protects your business if someone is injured in your shop. It can also protect your business if a client’s property is damaged while in your shop. General liability coverage can also provide protection against misleading or false advertising claims, slander/libel and copyright infringement.
Professional liability insurance: This type of insurance is also known as “errors and omissions” insurance and can protect you if one of your clients claims that you made a mistake while providing salon or barbershop services.
Business property coverage: If you want protection against vandalism, theft or other property damage, consider getting property insurance coverage for your business. Most landlords will require that businesses have some level of property coverage in place before signing a lease.
Business interruption insurance: This type of insurance can replace lost profits if your shop becomes damaged due to a major event and must be closed for an extended period of time. Some policies also cover employee salaries while you work to get your business operational again.
Workers’ compensation: If you have employees, consider getting a good workers’ compensation policy to provide medical benefits and wage replacement to any employees injured on the job. This coverage relinquishes the employee’s right to sue for negligence in exchange for medical benefits and wage replacement.
Crime: Crime insurance provides coverage for any mysterious disappearance and/or theft of property and money.
Cyber liability: In today’s era of data breaches, it’s wise to purchase cyber liability insurance. This type of insurance protects your business from any costs or liability associated with the loss of your customers’ personal data, whether it’s in physical or digital form.
Business insurance is never a one size fits all solution, so it’s important to talk with an insurance agent about you specific needs and vulnerabilities before settling on a policy. But no matter what your insurance coverage looks like, remember to deduct the premiums from your taxes each year!
Get Your Complimentary Insurance Quote
Do you want to learn more about the various types of insurance you can purchase for your barbershop or hair salon? To select from available coverage options and learn how much your insurance premiums will cost, get a free, personalized insurance quote from Bunker.