Ka-ching, ka-ching…the end of the year is the time to make some serious money in the 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.
Given that many salons and spas are in the 33 percent tax bracket, finding a hundred dollars of deductions saves you $33. 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.
Following are ideas for keeping Uncle Sam out of your pocket:
Start with 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 the current situation. Estimate what is 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, do not forget to mail your checks for deductible items before the end of 2011. 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 2011, they are deductible this year. If you wait until after the first of the year, you do not get to take the deduction until 2012.
If you have equipment needs, in 2011 you can write off up to $500,000 worth of equipment in the year of purchase and placement in service. This is scheduled to drop to $125,000 in 2012 but may change depending on what happens in Congress. Either way, 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 in order to qualify.
If you have children or retired parents or relatives who are doing work for the salon, do not forget to pay them a reasonable compensation. A child for example, can have income up to $5,800 without any federal income tax. If you are in a 33 percent bracket, this saves you $1,900 and costs the child no federal tax. Make sure it is reasonable and make sure you have good documentation.
The purchase of retail inventory is not a deduction until that retail inventory is sold. On the other hand, for most salons and spas, the purchase of backbar items is deductible. If you are in a high tax bracket, and you are going to need backbar items at the beginning of 2012, stock up and pay now to get a 2011-tax deduction.
These are just a few of the business items you can plan for to save taxes. Everyone's situation differs, so it is important to get personal advice on your situation.
Although we all like to save taxes, the important thing to remember is that taxes are just a cost of doing business. It is very important to make sure that you are not spending money foolishly. It would be silly to spend $1,000 on something you do not need just to save $333.
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.
Larry Kopsa, CPA, is a former salon owner and partner of the twenty-five member firm of Kopsa Otte, CPAs. Visit www.kopsaotte.com or email firstname.lastname@example.org for more information.