How much should a stylist set aside for taxes?
When you rent a booth or a suite, or get paid on a 1099, nobody takes taxes out of your money. You get it all, and you owe the taxes later. That's why setting money aside matters.
A common rule of thumb is 25 to 30% of your profit. Profit is what's left after business costs like rent and supplies, not everything you bring in. Your real number depends on your income, your state and your deductions. Your CPA can tell you what's right for you.
Why so much? On top of income tax, people who work for themselves pay self-employment tax for Social Security and Medicare. As a general US estimate, it's about 15.3% on 92.35% of profit. That's the part that makes the number bigger than you might expect.
Tips are income
Cash tips, card tips, app tips: they're all income, and you report them. Recent federal changes may let some people deduct part of their tips, so ask your CPA if that applies to you. Either way, write down your cash tips every week. It keeps your records and your tax return in line.
Quarterly estimated taxes
Because nothing is withheld, the IRS generally expects self-employed people to pay during the year, not just in April. These are quarterly estimated payments. Federal payments are usually due in:
- Mid-April, for January to March
- Mid-June, for April and May
- Mid-September, for June to August
- Mid-January, for September to December
Dates move when they land on a weekend or holiday, and many states have their own estimated payments. Ask your CPA whether you need to pay quarterly and how much. The calculator shows a simple starting point: your yearly set-aside split into four.
What booth and suite renters can usually deduct
Business costs lower your profit, and lower profit means less tax. Common ones for stylists and barbers:
- Booth or suite rent
- Color, product and supplies you use on clients
- Tools: shears, clippers, dryers, irons
- Booking app, card processing and software fees
- Classes and education
- License renewals and business insurance
- The business share of your phone
- Marketing, like your website or ads
What counts for you depends on your situation, so check with your CPA. Keep every receipt. A cost you can't show is hard to deduct.
Keep business and personal money separate
Open one checking account just for the business. Clients pay into it, and rent and supplies come out of it. Then open a savings account for taxes. Each time you get paid, move your set-aside percentage into it and leave it alone.
Pay yourself from what's left, a set amount on a set day. When money is mixed together, it's hard to see your profit and easy to spend your tax money by accident. If your accounts are already a tangle, our catch-up bookkeeping sorts it out.