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Notice: Nothing in this article constitutes tax advice for your situation. Please consult your accountant about your specific tax situation. This is informative only.
April 18th is around the corner! How do you feel about doing your taxes every year? If you are like most of us, completing our annual tax returns is stressful and time-consuming. Yet, it’s a critical part of owning a business that we all must participate in to stay compliant with the IRS.
As a sole proprietor (self-employed) lash business owner, taking charge of your tax situation is necessary, especially when the tax season edges closer. That means knowing your state’s tax laws and how your tax write-offs will affect your tax situation.
You should make the most out of the tax deductions related to your lash business to reduce your tax bills. Maximizing your tax write-offs means more money stays in your pocket.
What are tax write-offs?
A tax write-off or deduction refers to the amount of money subtracted from your income, reducing what you owe Uncle Sam. As a lash business owner, you must stay on top of your tax situation. Doing so will help you claim maximum tax deductions. And, as much as you must remain compliant, it’s also wise to find different ways to save your money.
Simply, you are allowed to write off any costs you incur when you provide the lash service, class, or sell a product. What you make above and beyond that amount is taxable. I love this example to the right.
I’m sure you have heard of people writing off their donations to charities, non-profits, and churches. The charitable donation deduction is the most well-known personal tax deduction. In this case, you will write off the money you contributed to charity, enabling you to reduce your taxable personal income by that amount. For example, if you earn $30,000 for the year and donate $1,000 in charity contributions, you can claim this contribution as a tax write-off. Barring any other deductions, your taxable income is now $29,000.
How Personal Tax Write-offs Work for Sole Proprietors
You’ll want to claim all your tax deductions to reduce your tax bill when completing your taxes. Therefore, it's necessary to understand the two ways of claiming personal tax deductions:
· Itemize your deductions: Itemizing your tax deductions is a demanding process that requires you to create a list of tax deductions you'd wish to claim. You must also keep your records safe to support your deductions' claims for seven years. While itemizing your deductions is time-consuming, it's worth it because you can claim many tax deductions that can lower your tax bill more than the standard deduction. If you choose to itemize your deductions, hiring an accountant or certified tax professional is wise. Itemizing business deductions is challenging to complete on your own.
· Standard deduction: Depending on how you file your tax returns (single filing, married filing jointly, or married filing separately), the IRS sets a fixed amount deduction for individuals. The standard deduction is the easiest option for most individuals because it automatically reduces your taxable income. In addition, it saves you the stress of sorting out receipts or bank statements when itemizing your deductions.
How to track your itemized business deductions throughout the year
It is essential to track your income and expenses throughout the year. Here are the steps I recommend:
1. Open a separate bank account that you only use for your business expenses (your payments and costs). Do not use this bank account for anything personal. This makes filing your taxes way more complicated at the end of the year.
2. Use the Quickbooks Self-Employed app. You will link your business bank account to this app, and it is easy to track your income and expenses properly. Go into the app every week and categorize your expenses and income for the week.
3. Know what business expenses can be write-offs. Check out this article and read it carefully and thoroughly.
Building your business is a fun, rewarding, and exciting adventure. Make sure you understand the tax situation around owning your own lash business because the IRS doesn’t accept “I didn’t know” as an excuse. Also, by maximizing your deductions, you get to keep more of the money you worked so hard to earn.
My #1 recommendation is to not complete your taxes on your own or through HR Block online or similar. Hiring an accountant will keep you out of hot water and usually allow you to receive a lower tax bill. Check Google or Yelp for a tax accountant near you.
Erika Baum
Founder of BrandedLASH and licensed aesthetician and lash trainer
Contact me at erika@brandedlash.com or text me at (720) 729-3555 anytime!
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