Figuring out how to file small business taxes can feel like a Herculean task, especially when your expertise lies in the world of beauty and wellness rather than accounting. 

When you file your taxes correctly, you can maximize deductions, avoid penalties, and maintain peace of mind. But, like any other skill, it requires practice and the right knowledge. What do I need to file taxes for my business? How do I deduct expenses? Do I qualify for any credits?

Relax and take a deep breath. Here’s some good news: you’re not the only one. Taxes are tough. The good news is that this guide is here to help you transform small business tax filing from a dreaded chore into a manageable process.

Types of Small Business Taxes

Let's start by talking about the types of taxes you'll encounter on your entrepreneurial journey. Each has its own quirks, but understanding them will be your first step toward mastering tax season, and it’s something you need to tackle before you learn anything else about how to file small business taxes.

Income Tax 

The granddaddy of taxes, income tax, is based on the profit your business generates. This tax applies to all businesses and is calculated on your net income, which is your total revenue minus expenses. 

For beauty and wellness entrepreneurs, this means considering everything from your service fees to product sales. The key is accurate bookkeeping. Keep track of your income and expenses meticulously throughout the year. Not only will this save you headaches come tax time, but it might also uncover hidden deductions you didn’t know were there. 

And remember, the IRS is your not-so-friendly reminder to keep things honest. Knowing how to file business taxes correctly will keep Uncle Sam off your back.

Sales Tax

You didn’t think you were done yet, did you? Sales tax is that little extra fee you charge your clients for products sold. Not every state requires it, but if you’re in one that does, it’s crucial to keep accurate records of these sales. 

Be sure to know your state’s sales tax rate and remit payments on time. Nothing ruins a good manicure like a late fee.

Self-Employment Tax

If you’re self-employed (and if you're reading this, there's a good chance you are), you’ll need to pay self-employment tax. This covers your Social Security and Medicare taxes, which is pretty important since you’ll want those benefits down the line. 

The rate is set by the IRS, so no haggling here. Save a portion of your income each month to cover this tax, so you're not caught off guard come tax season.

Employment Taxes

If you’ve got a team working with you, employment taxes are another consideration. This includes social security, unemployment, and Medicare taxes for your employees. 

It's important that you keep these funds separate and submit them regularly. If you don’t, you might be faced with penalties that could put a dent in your bottom line.

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How To File Taxes For Your Beauty and Wellness Business In 6 Steps

So what do I need to file taxes for my business, and how do I file a business tax return? Here are answers to some of your most pressing questions.

1. Determine Your Beauty and Wellness Business Structure

Your business structure plays a significant role in determining how to file small business taxes.. Most beauty and wellness businesses fall into one of several categories, such as sole proprietorships, partnerships, or limited liability companies (LLCs). Each structure has unique tax implications.

For a sole proprietorship, taxes are pretty straightforward. You report your business income and expenses on your personal tax return using Schedule C. 

Partnerships, on the other hand, require filing Form 1065, and each partner must report their share of income or loss on their individual returns. LLCs offer more flexibility, allowing you to choose how you're taxed - either as a corporation or a pass-through entity.

2. Organize Your Financial Records

Think of financial records as the building blocks of a strong tax return. Keeping them organized throughout the year can save you from last-minute scrambles and errors when filing taxes.

Start by maintaining a digital or physical file system for all your business transactions. Include invoices, receipts, bank statements, and any other documents that reflect your income and expenses. Accounting software can streamline this process by automatically categorizing transactions and generating reports.

3. Calculate Your Income and Expenses

Accurate calculation of income and expenses is the crux of small business tax filing. Begin by determining your gross income, which includes all money earned from your services, retail product sales, and any other sources related to your business.

Next, list all business expenses. These may include supplies, rent, utilities, marketing costs, and travel expenses related to work. Keeping track of deductible expenses is crucial for reducing your taxable income and minimizing your tax liability.

Consider using bookkeeping software to automate calculations and ensure accuracy. It’s a small investment that can pay off with significant savings and stress reduction come tax time.

4. Choose a Tax Method: Cash or Accrual

The choice between cash and accrual accounting methods can impact how you report income and expenses. Most small businesses adopt the cash method, which records income when received and expenses when paid. It's straightforward and aligns with most entrepreneurs' cash flow.

The accrual method, on the other hand, records income when earned and expenses when incurred, regardless of actual cash flow. While more complex, it provides a more accurate picture of your business's long-term financial health.

Choose the method that best suits your business operations and financial goals. If you’re uncertain, again, consulting with an accountant can provide clarity and help you make an informed decision.

5. File Your Beauty and Wellness Business Tax Returns

Once you’ve gathered all the necessary documents and made your calculations, it’s time to file your tax returns. Be sure to use the correct forms for your business structure and submit them by the appropriate deadlines to avoid penalties.

Filing electronically is often the most efficient option, offering faster processing and refunds. Many online platforms provide step-by-step guidance, making the process more manageable.

Don’t forget to make estimated tax payments throughout the year, too. This helps spread your tax burden and avoid surprises when you file your return.

6. Consider Working with a Professional

As we mentioned earlier, you may want to enlist the help of a tax professional for more peace of mind, especially as you’re first learning how to file business taxes. They’ll be able to offer personalized advice, make sure you’re in compliance, and identify opportunities for savings you might have overlooked. 

Although you’ll have to pay for their services, you’ll often make up for those costs in tax credits and deductions that you missed.

A CPA or tax advisor will also be able to help you with long-term tax planning, helping you make strategic decisions that will benefit your business in the long run.

Tax Deductions You Can Claim for Your Beauty & Wellness Business

Navigating tax deductions can feel like walking through a maze when you’re first learning how to file small business taxes. But once you know which expenses you can deduct, you’ll realize it’s not just about paying taxes – it’s about tax strategy.

1. Business Expenses

Running a beauty or wellness business means dealing with a slew of business expenses. From renting a chic studio space to stocking up on the latest must-have beauty products, these costs are necessary. 

The good news? They’re deductible! 

Whether you rent a chair at a salon or have a dedicated space, your rent or mortgage can be deducted. This is especially helpful if you operate your business from home; you can write off a portion of your home expenses based on the space you use for work. Plus, all those brushes, serums, and styling tools? They count as supplies, making them deductible too.

2. Insurance for Your Business

Insurance isn’t just a safety net; it’s also tax-deductible. If you have coverage for massage therapy, personal training, or any other beauty and wellness services, those premiums can be deducted. 

Not only are you protecting yourself against unforeseen issues, but you’re also cutting down your tax bill. It’s a win-win! Make sure to keep detailed records of your insurance payments to take full advantage of this deduction.

3. Marketing and Advertising Costs

Promoting your beauty or wellness business is a must if you want to attract and retain clients, and the good news is that these costs can also be tax-deductible. 

Whether you’ve invested in social media advertising, printed flyers, or even hired professionals to design your marketing materials, these expenses can help lower your taxable income. Just make sure you keep all your receipts and documentation related to your marketing campaigns.

Tips to Get Your Beauty & Wellness Business Taxes in Order

Keeping your tax affairs in check is paramount for staying stress-free during tax season. Here are some tips to ensure you're on top of your game.

Use Accounting Software

Let's face it – manual bookkeeping is so last century. Step into the future with accounting software that automates mundane tasks. By using accounting software, you can effortlessly track income and expenses, generate invoices, and reconcile bank accounts. 

Not only does this save you time, but it also helps avoid errors that could cost you later. Plus, you can always take advantage of GlossGenius’ Finance Management features, so you can start managing your money like a pro as early as today!

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Distinguish Business and Personal Expenses

We’ve all been there – blurring the lines between personal and business expenses. But come tax time, that confusion can cost you. It’s crucial to keep them separate.

Consider setting up a dedicated business bank account and credit card to streamline this process. That way, you can easily track which expenses are for business and submit accurate reports come tax time.

Regularly Review Financial Reports

Staying informed about your financial health is essential for making strategic business decisions. On a regular basis, you should view financial reports like your income statements, cash flow statements, and balance sheets. This will provide valuable insights into your business's performance. 

With this knowledge, you can then identify trends, manage cash flow effectively, and make informed decisions to drive growth. Schedule monthly or quarterly reviews to keep your finances in check and adapt to any changes promptly.

Implement a Budgeting System  

Creating and sticking to a budget is a fundamental practice for any successful business. A well-structured budget allows you to allocate resources effectively, monitor performance, and make sure you are operating within your financial means. 

Manage Your Finances in One Place with GlossGenius

Taxes are just the tip of the iceberg when managing finances. For small beauty and wellness business owners, a holistic approach is key. 

That’s where GlossGenius comes in! This all-in-one platform offers features like Reports & Analytics, Payroll, and Team & Staff Management. 

Imagine having everything in one place, simplifying your life while boosting your business’s efficiency. Why juggle multiple apps when you can streamline everything with GlossGenius? Start a free trial and see the difference for yourself.

Disclaimer: Please consult your accountant, CPA, or advisor about your personal tax situation. GlossGenius cannot provide tax advice.

FAQ

Can I deduct the cost of continuing education courses for my beauty and wellness business?

Learning new techniques and expanding your skillset can boost your business – and it’s deductible. Whether you're attending workshops, seminars, or online courses, these can be written off under business expenses. 

How do I report my income from selling products in my beauty and wellness business?

If you're selling products, you likely need to report this income on a Schedule C, Profit or Loss from Business, form. You'll list your gross receipts and subtract the cost of goods sold and other business expenses; then, the net income or loss will then transfer to your personal tax return. 

What is the difference between a Schedule C and a Schedule SE?

A Schedule C is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor. A Schedule SE calculates self-employment tax, which covers Social Security and Medicare taxes for individuals who work for themselves.