The bottom line is taxes have to be paid to avoid trouble with the IRS. Barbers are self employed and are responsible for paying their own taxes. What you file on your taxes will greatly impact your future as far as getting a house, cars and other big ticket items in the future.
The more you file the more you can afford to buy in the future. The best strategy is to calculate what your TOTAL gross income is every week and deduct your overhead expenses like supplies, booth rental, gas for transportation, dry cleaning, etc.
Deduct any expense that is needed to function as a barber. Once you deduct those expenses from your total gross income for the week, you will have your total net income remaining. From the net income remaining, deduct 30% for Federal Taxes and State Taxes. 25% will go to Federal Taxes(IRS) and 5% will go to State Taxes. So for example:
1. Let’s just say that you made $1000.00 dollars for the week.
2. KEEP ALL RECIEPTS FROM MONEY SPENT. IF YOU DON’T LIKE RECIEPTS, THEN WRITE CHECKS OR USE DEBIT/CREDIT CARDS SO THAT YOU CAN TRACK ALL OF YOUR TRANSACTIONS. A business credit cardcan be a good way to keep track of business expenses for tax season. Gather ALL of your reciepts from all expenses for the week and add up the reciepts. Those reciepts will likely be from your booth rental, supplies, gas, laundry and any other expense that you need to function as a barber.
So lets say the reciepts total up to $200.00 to function that same week that you made $1000.00. Subtract the $200.00 in transactions from the $1000.00 you made that week and you will have $800.00 remaining. Now don’t get confused
You will already have the $800.00 for the week in your hand. You just need the reciepts to see what you spent your money on for the week. So if you have $800.00 in your hand and you add up all of the reciepts from the week and the reciepts add up to $200.00, then when you add the $200.00 in reciepts to the $800.00 you have in your hand, it will add up to a total of $1,000.00 for the week.
3. Now from the $800.00 dollars that you have left over after you paid booth rental and other expenses, you need to subtract 30% from the $800,00 and put that 30%(money) aside for your Federal and State Taxes, which in this example would be $240.00 and leaves you with $560.00 of profit for the week. You can spend the $560.00 however you wish without any worries.
4. So now when it is time to file your taxes as a barber, you can take those expense reciepts and the 30% that you set aside for Federal and State Taxes and find a CPA and it will be smooth sailing. It will be easier if you use checks and credit cards because you won’t have to keep up with ALL of those reciepts. If you do decide to keep reciepts, then try to transfer those transactions from the reciepts to a spreadsheet or write them down in a notebook.
5. No one ever said being a self employed barber was easy. You are a BUSINESS and have to conduct yourself as a BUSINESS to personally benefit in the future. Hope this helps.
LICENSED MASTER BARBER
For more info you can contact:
CPA John H. Pitts III 678.518.1554