Here are some must-know tax facts for salon business owners in October:
1. Prepare for Year-End Tax Planning:
As the year approaches its end, it's critical to start planning for tax filings. Review your revenue, expenses, and overall financial standing to make any adjustments before the end of the tax year. This includes considering deductions, retirement contributions, and potential equipment purchases.
2. Section 179 Deduction:
If your salon has purchased equipment or made significant investments in tools, you may qualify for the Section 179 deduction. This allows businesses to deduct the full purchase price of qualifying equipment, such as salon chairs, washing stations, or point-of-sale systems, rather than depreciating them over time.
3. Qualified Business Income (QBI) Deduction:
Salon owners operating as sole proprietors, LLCs, or S-corporations may be eligible for the QBI deduction, which allows for a deduction of up to 20% of qualified business income. It’s important to check if your income level qualifies and to maximize this deduction.
4. Home Office Deduction:
If you’re running part of your salon business from home (for instance, managing bookings or consultations), you may qualify for a home office deduction. This applies whether you're renting or own your home, but you must use part of your home exclusively and regularly for business.
5. Payroll Tax Compliance:
Ensure that you're in full compliance with payroll taxes for any employees. Stay up-to-date with federal payroll tax obligations, such as Social Security and Medicare taxes, and be mindful of any state or local tax requirements. October is a good time to verify that your quarterly payroll taxes (Form 941) are filed correctly.
6. Review Tax Credits:
Look into available tax credits such as the Work Opportunity Tax Credit (WOTC), which may apply if you’ve hired employees from certain targeted groups (veterans, long-term unemployment recipients, etc.).
7. Inventory Write-Downs:
For salons that carry retail products, it's essential to assess inventory levels. If certain products are damaged, obsolete, or unsellable, consider writing them down before year-end to reduce taxable income.
8. Sales Tax Compliance:
Be sure you're correctly collecting and remitting sales tax for retail product sales and possibly for certain services, depending on your state’s laws. Regularly audit your sales tax compliance to avoid issues.
9. Tax-Advantaged Retirement Contributions:
Salon owners can contribute to tax-advantaged retirement accounts, like a SEP IRA or Solo 401(k), which could reduce taxable income. Consider maximizing contributions before the end of the year.
10. Mileage Deduction:
If you travel for business purposes, whether to pick up supplies, attend industry events, or visit clients, track your business mileage for a potential tax deduction. The standard mileage rate for 2024 is 65.5 cents per mile.
These are critical areas that salon business owners should be aware of as they prepare for year-end taxes. Starting now gives you the time to adjust and take advantage of tax-saving opportunities.
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