When you’re a bridal hair or makeup artist, one key part of your business is making sure you are running a successful and profitable business. A key part of that is knowing how to navigate the financial side of your business – including taxes. To be tax-ready you need to have some important pieces of your business in place. 

 Your Legal Business Entity Structure 

While the term may sound confusing, it’s meaning is quite simple. 

Kaneisha Coleman, a beauty CPA who specializes in working with beauty entrepreneurs said, “A legal business entity structure is simply the way your beauty business is going to be organized and recognized by the state that you live in, and the taxing authority - the IRS and your state taxing authority. There are six options in general. You can be a sole proprietor, you can be an LLC, which is a limited liability company, you can be a, a general partnership, or a multi-member LLC, or you can be a S corporation or a C corporation. So, it's basically how your business is organized under the eyes of either your state and or taxing authorities.

When you’re considering which option would be best for your business, there are three things to consider: 

-Asset Protection: If you were to ever encounter litigation, you want to make sure your personal and your business assets are separated. If anyone brought suit to your business, this would mean that the only thing they could go after would be assets housed in the business, not your personal house, car, or savings. You can get asset protection using an LLC. 

-Taxes: You get certain benefits based on how your business is organized or categorized. As a sole proprietorship or LLC makes more profit, something like an S corporation would give you better tax break benefits. 

-Ownership Transfer: If you wanted to bring investors into your business, or even look at transferring to a descendant, an entity structure like a C or S Corporation would be easier to accommodate then a Sole Proprietorship or an LLC.”

It’s important that you select which entity meets your needs and includes the benefits you are looking for. While some can be set up online on your own, you may need to hire a professional for the more complex business entities. 

Separate Your Personal and Business Bank Accounts 

Regardless of your business structure, you should always have a separate business account from your personal. You don’t want your personal and business expenses mixed. If the IRS were to ever audit your business, if your bank accounts are combined every item on your tax return could be brought into question. It’s also important to have your accounts separate so you can clearly see what your business cash inflows and outflows are. 

Be Aware of Tax Loopholes 

While the word loophole may strike fear in you, certain tax benefits are law – and 100% legal.  One of these loopholes is to look at your expenses holistically – how can I turn what I’m already spending into a business opportunity? As a business expense, it’s a deduction for you, and its money you would have spent anyways. 

If you are looking to get even higher tax savings, that would be the time to look at hiring a professional, like a CPA, to really strategize and take over the complex part of the process. 

It’s also important that you are aware of what are considered “write-offs” and what is not. One common misconception about write offs is that anything personal in nature is not a write-off. That’s where the previous loophole is important – it must be for business for it to be considered a deduction for your business. 

Keep Records 

It’s important that you save any documents that would support your tax return – especially for material items. If you were to be audited, the first thing that would be examined is anything material in nature. They are going to want to be able to look at an item and decipher how it was used for your business. You can accomplish this by saving your receipts and making sure to include the use in a note directly on them, or in a file if you store them electronically. 

Kaneisha Coleman, Beauty CPA recommends, “Make sure you have the receipt, which is going to show the item, the price, the date, the vendor, and document on the receipt “this is how this is used in my business.”  Create a Google doc and save it in your drive with picture of that receipt. I recommend saving everything electronically because paper will fade. The IRS has three years to come back to audit you. That paper will fade in three years. So, take a picture of it right away, upload to Google Drive folder and make sure you notate in the memo how it was used in your business.” 

Automated programs like QuickBooks Online are also an option to document your receipts – although a backup on a Google Drive is recommended in case of something like a subscription lapse.

If you have further questions on how you should be structuring your business or need help with your taxes, you can contact a local CPA. 

What's Next?

You might also really love my March 2023 Masterclass from my Masterclass Magic Series all about Saving Time On Admin!  This masterclass is dedicated to helping you save more time on the tasks it takes to run the backend of your business, like taxes!  You may also like my July 2023 Masterclass on Admin Assistants where I also discuss time saving apps and programs to make collecting your tax details easier.  Check out more on the masterclass and all the monthly topics here!