You own your own physical location where you operate and offer barbering services. When starting out you elect to run your business as a sole proprietorship, partnership, or as a corporation. You may have employees who work for you or you may decide to hire contractors.
CONSIDERATIONS: As an employer, federal law requires you to withhold taxes form your employees’ paychecks. Depending on the wages, you must take out of your employees’ paychecks certain amounts for Federal Income Tax, Social Security Tax, and Medicare Tax. You must then pay any liability for the employer’s share of Social Security and Medicare Taxes. This portion, your share, is not withheld from employees. You may also be required to pay unemployment (FUTA) taxes on these wages. In addition to reporting all taxable income on the appropriate income tax form, you would also have the responsibility for issuing Form W-2, Wage and Tax Statement.
You work at a barbershop where you are paid a wage either on an hourly or salary basis. Your shop owner determines how the shop and your business operated.
CONSIDERATIONS: If you’re an employee, your employer will withhold taxes from each paycheck. Beginning in 2018, employees are no longer able to deduct their unreimbursed employee expenses on their taxes.
You work at a barbershop where you are employed as a contractor and you operate your own independent business. You rent booth space from the shop owner on an agreed upon rate & cadence.
CONSIDERATION: As a booth renter, or independent contractor, you may need to make estimated tax payments during the year to cover your tax liabilities. This is because as a booth renter (independent contractor), the business does not withhold taxes from your pay. Estimated tax is the method used to pay tax on income that is not subject to withholding, such as earnings from self-employment you receive as a booth renter. Estimated tax payments are made each quarter using Form 1040-ES, Estimated Tax for Individuals.
Employees’ Federal Income Tax, Social Security Tax, and Medicare Tax. You must then pay any liability for the employer’s share of Social Security and Medicare Taxes.
Your share of state and federal taxes. Your employer will provide you with a W-2 detailing your income.
Your federal tax responsibilities would be limited to reporting your income earned and expenses. For example, a sole proprietorship would file Form 1040, using Schedule C to report business income and expenses and Schedule SE to report Self-Employment tax.
The major dates for the 2020 tax season, along with other dates you need to be aware of to file your 2019 tax return, include:
The general income rules from the IRS require filing a tax return if your income exceeds the following thresholds for 2018:
Single, under 65—$12,000
Single, 65 or older—$13,600
Married filing jointly, both spouses under 65—$24,000
Married filing jointly, one spouse 65 or older—$25,300
For Married filing jointly, both spouses 65 or older—$26,600
Married filing separately, any age—$5
Head of household, under 65—$18,000
Head of household, 65 or older—$19,600
Qualifying widow(er) with dependent child, under 65—$24,000
Qualifying widow(er) with dependent child, 65 or older—$25,300
Gross Income: When filing you should report all the income generated from your primary service of barbering and or any product sales as well. You can request an estimated annual report from us at theCut. We’ll tally up your bookings through the platform and make it easy for you to prepare your return. Reach out to email@example.com to request your report.
Tips: If any tips received in the normal course of your business must be reported in your gross receipts, and reported on the appropriate income tax form. You may have had challenges in being compliant with your tax responsibilities in the past and may be receiving letters from the IRS. But remember, for every tax problem there is a solution.
You can claim some of the equipment costs for a smaller tax break over a few years (read more about the process called depreciation here).
If you purchase a barber chair for $1,500, for example, you can depreciate that cost over 5 years.
If you go for a section 179 deduction, you could deduct the entire $1,500 in the first year (provided your total section 179 deductions don’t exceed $1,000,000 in 2018).
When filing, be sure to report all your costs and deduct the appropriate expenses from your income when reporting.