Bookkeeping for hair stylists and beauty pros

A Saturday behind the chair

Picture a busy Saturday. Seven clients. Four pay by card through your booking app, two pay cash, one sends money through a payment app. Five leave tips: three on the card, two in cash folded into your hand. One client buys a $38 bottle of shampoo on the way out.

By Monday, the card money arrives in your bank as one deposit, minus fees. The cash is in an envelope in your station drawer. The payment app transfer comes on Tuesday. Nothing in your bank account shows the whole Saturday.

This is why the first habit matters more than any other. At the end of each day, write down the cash you took and the cash tips you received. A note on your phone is fine. In Righto, add it as a cash entry before you leave the salon. Everything else can wait for the weekly catch-up. Cash cannot, because by Thursday nobody remembers Saturday.

Tips are income

Tips are taxable income whether they come by card or in cash. If you rent a booth or a suite and work for yourself, they are part of your business income on Schedule C, and they are subject to self-employment tax like the rest.

Card tips are easy, because they are in the deposits. Cash tips are the ones that go missing. A stylist who takes $60 a week in cash tips has more than $3,000 of income a year that exists only in her memory. If the IRS ever compares your deposits and your lifestyle, a daily log is your best defense.

If you are an employee of a salon instead, you report tips to your employer and they handle withholding. This guide is for stylists, barbers, estheticians and nail techs who rent a chair or suite and run their own business.

Card fees and the 1099-K

Your booking app or card reader deposits money minus its fees. A week of $2,140 in card sales and tips may arrive as $2,069.

If you get a Form 1099-K, it reports the gross card volume, before fees and refunds. Record the gross as income and the fees on line 10, commissions and fees. In Righto, split the $2,069 deposit into $2,140 of income and $71 of fees, and the bank still reconciles to the cent. Recording only the net makes your income look lower than the form the IRS receives.

Products: used or sold

Stylists buy two kinds of product, and they go in different places.

• Product you use on clients, like color, developer, toner, treatments and foils, is a supply. It goes on line 22.
• Product you resell, like shampoo, styling cream and tools you sell at the station, is cost of goods sold, in Part III of Schedule C.

Keep them in separate categories from the start. A single distributor invoice often has both. Split it when you record it: $410 of color on line 22, $180 of retail stock to cost of goods sold.

Retail stock you still have on the shelf at year end is inventory. Righto does not track inventory, so do a quick count on December 31 and write down what you paid for what is left. Your preparer uses that number in Part III.

Retail sales may also need sales tax, depending on your state. Many states tax the product but not the service. The sales tax calculator helps with the arithmetic, and your state’s revenue department has the rules.

What else you pay for

Good shears are the classic case for the de minimis safe harbor. A pair at $780 can be expensed as a supply on line 22, because it is $2,500 or less per item or invoice, if you make the election on your return each year (see the IRS page on tangible property regulations). A suite build-out or a $4,200 chair goes on line 13 instead.

Your own hair, nails and clothes are personal, even if clients see them. Work smocks or aprons with the salon name usually count; everyday black clothes usually do not.

One year in numbers

Here is a year for a suite renter we will call Maya.

Self-employment tax: $61,062 × 0.9235 × 0.153, about $8,628. Income tax comes on top. Use the self-employment tax calculator for your own figures.

Look at the rent. $13,800 is Maya’s largest cost, and it does not change in a slow month. Her monthly fixed costs (rent, insurance, phone, booking app) are about $1,300. At an average ticket of $95, she covers them with fourteen clients a month. The break-even calculator does this for your own prices, and it is worth running before you move to a bigger suite. The markup calculator helps price retail.

Setting aside tax

A suite renter has no employer withholding anything. Estimated tax payments are due four times a year; the estimated tax dates page lists them.

Each week, when you count up, move a fixed share of the week’s income, often 25% to 30%, into a separate savings account. Include cash tips in that count. Stylists who skip this often find April is the most expensive month of the year.

Common mistakes

• Cash tips never recorded. The most common gap, and the hardest to fix later.
• Net deposits only. If a 1099-K shows gross, record gross and fees.
• All products in one bucket. Products used and products sold go in different places.
• No year-end count. Without it, cost of goods sold is a guess.
• Personal beauty costs. Your own cut and color are personal.

A weekly routine

Daily, in two minutes: record cash payments and cash tips.

Weekly, in fifteen minutes:

1. Import bank, card and app statements (importing statements).
2. Let rules handle rent, the booking app and your regular distributor.
3. Split app deposits into gross and fees.
4. Split product invoices into used and resold.
5. Move the tax share to savings.

Monthly, reconcile each account to the cent.

What to hand your tax preparer

Righto’s year-end package gathers a cash-basis profit and loss, the expense detail by Schedule C line, and reconciled balances. Add:

• Every 1099-K and any 1099-NEC
• Your daily cash and tip log
• The December 31 count of retail stock, at cost
• Receipts for equipment over $2,500
• Sales tax returns, if you file them
• Estimated tax payments, with dates

Publication 334 and the Schedule C instructions explain each line.

General information, not advice for your situation. Ask a tax professional about your own return.