Taxes for Barbers and Beauticians

Reprinted from Chicago Defender, Constant W. Watson, III Defender Guest Columnist
Published: April 6, 2018

Whether you are a shop owner or a booth renter (independent contractor), you need to know your federal tax responsibilities, including how to report your income and tips you receive from your customers.

As a shop owner you can elect to structure your business in different forms. You can choose to operate your business as a sole proprietorship, partnership, or as a corporation. Your business may have employees who work for you or you may decide to operate without employees. Another common arrangement is renting space to another individual who operates an independent business. This is commonly referred to as a booth renter and will be discussed later in this article.

It doesn’t matter which business structure you choose; there are basic principles that do not change. Income received in the course of your business is taxable income and must be reported on the appropriate income tax return form.

If you operate your business without employees, where you are the only worker, then your federal tax responsibilities would be limited to reporting your income earned and expenses. For example, a sole proprietorship would file Form 1040, using Schedule C to report business income and expenses and Schedule SE to report Self-Employment tax.

Once you decide to hire workers you must make a determination if they are your employees or if they will operate their own independent business (booth renters). Simply stated, an employee is an individual who works at the control and direction of another. It is important to remember that as the employer, you do not have to control the worker all of the time. You simply have to have the right to control. If you give extensive instructions as to how, when, or where to do the work and where to purchase the supplies, then more than likely you are the employer and the worker is your employee.

As an employer, federal law requires you to withhold taxes from your employees’ paychecks. Depending on the wages, you must take out of your employees’ paychecks certain amounts for Federal Income Tax, Social Security Tax, and Medicare Tax. You must then pay any liability for the employer’s share of Social Security and Medicare Taxes. This portion, your share, is not withheld from employees. You may also be required to pay unemployment (FUTA) taxes on these wages. In addition to reporting all taxable income on the appropriate income tax form, you would also have the responsibility for issuing Form W-2, Wage and Tax Statement.

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