Ka-ching, ka-ching...the end of the year is the time to make some serious money in salon business. Not only can you boost revenues with the additional business that comes through your door during the holiday season, but you can also make money by doing some effective year-end tax planning, says Larry Kopsa, CPA or Kopsa Otte CPAs and Advisors.
Larry Kopsa, CPA
Given that many salons and spas are in the 33 percent tax bracket, finding a hundred dollars of deductions saves you $33. And finding $100 worth of credits can save you $100. So now's the time to determine the moves you need to make to reduce your taxes.
Kopsa offers the following ideas for keeping Uncle Sam out of your pocket:
- One item that can really help you out is to do what we call a pre-tax plan. Gather your information, set up a time with your tax advisor and determine what your taxes are going to be based on your current situation. Estimate what's going to happen for the rest of the year, then your advisor can step back and make recommendations for you.
- If you are a "cash basis" salon or spa, as you get close to year-end, don't forget to mail your checks for deductible items before the end of 2009 to insure the write-off. You can claim the deduction in the year that the check is dropped in the mail. The check does not have to clear the bank in order for it to be deductible.
- You can use credit and debit cards to pay bills, but make sure you understand the rules. Credit cards are deductible at the time that you actually charge the item, whereas a debit card is not deductible until the bill has cleared the bank.
- Many times, the end of the year is the time to do bonuses for staff. If you do the bonuses in 2009, they are deductible this year. If you wait until after the first of the year, you do not get to take the deduction until 2010.
- If you have equipment needs, in 2009 you can write off up to $250,000 worth of equipment in the year of purchase and placement in service. This amount is supposed to drop to $134,000 in 2010, but those people who have their finger on the pulse of Congress think that the $250,000 amount will continue into 2010. Either way, if you do have equipment needs, this is a great way to slash your taxes. Remember, the equipment not only has to be purchased but also has to be placed in service.
- If you have children or retired parents or relatives who are doing work for the salon, don't forget to pay them a reasonable compensation. A child for example, can have income up to $3,650 without any federal income tax in 2009. If you are in a 33 percent bracket this saves you $1,200 and costs the child no federal tax. Make sure it's reasonable and make sure you have good documentation.
- The purchase of retail inventory is not a deduction until such time as that retail inventory is sold. On the other hand, for most salons and spas, the purchase of backbar items are deductible when purchases. If you are in a high tax bracket, and you are going to need backbar items at the beginning of 2010, stock up and pay now to get a 2009 tax deduction.
These are just a few of the business items you can plan for to save taxes. Note, everyone's situation differs, so it's important that you get personal advice on your situation. The important thing to remember is that taxes are just a cost of doing business. You want to make sure as you put together your tax philosophy that you are not spending money foolishly. It would be silly to spend a $1,000 on something you don't need just to save $333.
Kopsa Otte offers a weekly blog of tax-related advice targeted to the salon and spa market. Click here to sign up for the blog.
(Note: The information provided does not constitute legal, tax, accounting or financial advice and is offered as an information service only. Those seeking specific advice should contact a professional advisor. No liability whatsoever is assumed in connection with the use of this information."