If you are self-employed, visit IRS.gov for all your tax needs. Knowing the tax rules can help your business start, grow and succeed. For example, see IRS Publication 4902, Tips for the Cosmetology and Barber Industry. Here are some of the topics included in this booklet or detailed on IRS.gov:
One of the first things you need to decide is the type of structure for your business. The most common types are sole proprietor, partnership or corporation. You may have employees or rent space to someone who is self-employed. Visit IRS.gov for tips on starting and operating your business.
Report Tip Income
All tips you receive are taxable income. If you have employees who receive $20 or more in cash tips in any one month, they must report them to you. You must withhold federal income, Social Security and Medicare taxes on the reported tips. Learn more about these rules in the IRS video Reporting Tips.
You can deduct ordinary and necessary expenses that you pay to run your business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense is a cost that is proper for that business. For example, cosmetologists are often required to get a license or pay for a permit or certification. See Publication 535, Business Expenses for more on this topic.
If you are self-employed you may need to make estimated tax payments each year. If you do not pay enough tax during the year, you may owe a penalty. Use Form 1040-ES, Estimated Tax for Individuals to figure the tax. Direct Pay, available on IRS.gov, now offers you the fastest and easiest way to make these payments.
Depreciation of Assets
You can deduct the cost of some assets over a number of years. For example, if you buy equipment and furniture, you should depreciate the cost of those items since you will normally use them for more than one year. Check out the IRS webinar Depreciation Basics to learn more.
Filing Your Taxes
If you have employees, the IRS offers electronic filing options for your federal payroll tax returns. IRS e-file is fast, safe and accurate. You’ll also receive an electronic acknowledgment when the IRS accepts your e-filed return. You can use EFTPS to make any federal tax payments.
Everyone in business must keep records. You must have good records to support the income, expenses and credits that you report. Good records can help you keep track of your business. They can also increase the likelihood of business success. Watch the IRS video Good Recordkeeping Helps Avoid Headaches at Tax Time to find out some of the best practices.