How To Tip When Two People Work.On Your Hair Tax Tips For Self-Employed Barbers And Hair Stylists

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Tax Tips For Self-Employed Barbers And Hair Stylists

No matter how good your accountant is, if you don’t provide all the necessary information and figures, your statement will be wrong. And any tax return that is done incorrectly will fail an audit if exposed.

Undocumented cash income, inventory errors, overlooked deductions, and missed benefits are common in this industry. Some of these mistakes increase your federal tax bill; others cheat your future. The self-employed can take advantage of the same IRS rules used by large corporations, allowing them to lower their tax bill without cheating on their taxes.

The following tips will help self-employed hair care professionals survive an audit.

Tax tip 1 – Without receipts, you will always fail an IRS audit. When every expense and every income has a paper trail, you almost always survive an audit. Tax returns must be kept for a minimum of 10 years and tax receipts for at least 6 years.

Tax tip 2 – All items purchased or created for resale are considered inventory by the IRS. Inventory expenses can only be deducted when the inventory is sold.

Products used on customers are never considered inventory, allowing for the immediate deduction of all business supply expenses. However, many stylists supplement their profits by selling hair products or other goods to their clients. Knowing how inventory is tracked will minimize your non-deductible inventory costs and show you how easy it is to beat an IRS inventory check.

Tax tip 3 – Neglected deductions mean you put less money in your pocket and pay too much tax. Even if you create a paper trail every time you use your debit card, credit card, or write a check, it’s not an easy trail to follow come tax time.

And, figuring out that paper trail three years later when you need to produce your receipts for an audit will be next to impossible. Because your business is small, when you work with actual receipts it’s easier, faster, and everything you need to counter an audit is always ready, should you be called upon to explain your deductions to the IRS.

Tax tip 4 – Anyone who is not up to date on IRS laws will lose their tax benefits. Tax laws change every year, sometimes offering huge savings for only a short period of time. Even if you do your own taxes, it’s wise to speak with a tax professional occasionally, just to keep up with new tax credits and planning opportunities.

Tax return preparation begins on January 1 for the profit-oriented independent entrepreneur. Starting early is a good way to increase your chances of surviving an audit. Learning how the IRS views the industry in which you earn your self-employment income will show you how easy it is to cut taxes as you grow your business.

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