As a lash artist, understanding the nuances of taxation is crucial to the success and legality of your business. Whether you're flying solo or managing a bustling salon, taxes are a reality you can't ignore. Here's a simple guide to help you handle your taxes confidently and to explore the financial viability of starting your own lash business.
I am not claiming to be an expert on this matter, so I would suggest seeking advice from someone who knows this topic very much.
How important is it to know the ins and outs of taxes for lash artists? I had no idea about this when I started, and nobody discussed this during my classes and training.
You might think that you are just working at home and don't need to know about taxes, then you might start checking this online.
It's essential to know how the IRS looks at any business.
I will share what information I got with you, and hopefully, you will find this helpful.
Do Lash Techs Pay Taxes?
Absolutely. Lash techs, like all independent contractors and business owners, must pay taxes on their income. The exact amount will depend on your earnings, expenses, and the tax bracket you fall into.
In the United States, you will need to file both state and federal taxes and 1099 forms.
If you collect money for goods, you will need to charge and file sales taxes, which differ from state to state. You may also be required to set and file city taxes. If you have employees, you will need to know the laws for handling employee taxes. If you are overwhelmed or uncertain, consult an arts accountant.
Most visual artists are considered "self-employed" regarding filing their taxes. In a legal and taxpaying sense, your "business" as an artist and individual taxpayer is the same. There is no legal separation, such as in a corporation, partnership, LLC, or other legal entity. The artist usually files a "Schedule C" as part of their regular 1040 income tax form, which is where you report your art income and expenses.
The artist may file a form 8829 for the home office (studio) deduction and will also be required to pay self-employment tax (Schedule SE) on their net income (profit), as well as federal income tax. All these forms are part of the year-end 1040 income tax filing. As a self-employed artist, you will usually pay estimated quarterly taxes using Form 1040-ES if your Federal tax liability is over $1,000.
Incurred in connection with your trade, business, or profession.
Must be "ordinary" and "necessary."
Must "NOT be lavish or extravagant under the circumstances."
These guidelines are not an exact science. The artist has a large group of basic expenses that easily fit the above criteria: travel (hotel, meals, etc.), vehicle and transportation costs, equipment, art supplies, home studio expenses, legal and professional fees, gallery costs, and commissions, etc. Below are some of the more complex and contentious deduction areas.
To comply with the IRS, an artist must consider if their art practice is a business or a hobby for tax purposes. Artists often have financial losses—overhead exceeds the profit brought in by the sale of the artwork. When does the tax code determine an enterprise to be a business instead of a hobby?
Although you must claim the total amount of income you earn from your hobby, hobby-related expenses are generally deductible only to the extent of income produced by the activity. Therefore, if you do not generate any income from your hobby, you cannot claim any deductions. Furthermore, even those hobby expenses which can be deducted are subject to an additional limitation—they are considered miscellaneous itemized deductions on Schedule A, which are deductible only to the extent that they exceed 2% (at this writing) of your adjusted gross income. By contrast, if your activity can be classified as a bona fide business, you may be able to deduct the total amount of all your expenses by filing a Schedule C. In short, a hobby loss will not cut your overall tax bill because the tax law stipulates that you cannot use a hobby loss to offset other income.
As a business, you can deduct a net loss from other income you earn, such as wages and salaries. How does the IRS determine whether your activity is a hobby or a for-profit business? The IRS outlines these nine criteria:
Whether you carry on the activity in a business-like manner.
Whether the time and effort you put into the activity indicate, you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether your losses from the activity are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).
Whether you change your methods of operation in an attempt to improve profitability.
Whether you have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years, and how much profit it makes.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
The primary determinant is your ability to make a profit at what you are doing. If your efforts result in a gain in three-out-of-five consecutive years, your activity is presumed not to be a hobby by the IRS. You may have to prove to the government that you have made a genuine effort to earn a profit, so keep meticulous business-related records and conduct yourself in a business-like manner.
You need to keep track of the following expense items:
- Travel expenses
- Office rental (whether at home or not)
- Commissions or payments to managers or employees
- Equipment used in your trade
- Auto insurance and repairs
- Supplies and materials
- Unique clothing or safety equipment for your work
- Legal and accounting fees or services
- Bank fees
- Studio rent and expenses
- Utilities, including phone/Internet
- Entertainment and meals related to your business
- Business fees
- Equipment rental
- Publications, periodicals, and other research materials
- Fees for workshops and seminars
- Membership or association dues
- Shipping or mailing
- Repairs or maintenance
- Sales taxes
You need to keep track of the following income items:
- Proceeds from the sale of your work
- Income from rented or leased work
- Wages or salary paid for work as an artist, including honoraria, commissions, fees, and stipends
- Grants, awards, and fellowship funds
- Copyright royalties for published or distributed works
- Advance payment for work to be completed in the future
You should have the following information for each item:
Reason for the income or expense/description
Check number, invoice, tracking number, or indication of another form of payment.
I know you are now overwhelmed with the information here. It's too hard to understand. I would highly suggest getting an accountant to deal with all your taxes concern if you can.
IRS websites are also helpful with information you might need.
For more information about this topic, please click here.
The best thing you can do as a lash artist is to be organized. Part of being organized includes paying your taxes on time and keeping good records of your business expenses.
If you have a lot of expenses related to running your lash business, it's important that you get an accountant to help you with these things. You may also want to hire someone who is experienced in accounting for small businesses, so they can provide valuable advice on how to keep track of and pay your taxes properly.
As a lash artist, it's important to keep track of what's going on with your business and how much money it's making or losing each month. You should also know how much money is being spent on supplies, marketing, and advertising, etc. so that when tax time comes around, there aren't any surprises or mistakes made when filing your taxes.
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