The Importance of Keeping your Beauty Business Legal – Part 3

Taxes and Your New Business –

Different states have differing requirements regarding the charging of taxes, depending on what you buy. When you receive your business registration information for your newly formed spa or beauty business, which will include your tax identification number, included with that is usually instructions on how to assess taxes and what rates to charge for different items. For the most part, however, taxes are calculated as part of an item or service and the price of that service is marked up accordingly depending on what the item being sold happens to be.

In five states, Alaska, Delaware, Montana, New Hampshire and Oregon, there is no general sales tax. While this is a boon for purchasers, it can be a hassle for sellers. There are specialized taxes on purchases that include alcohol, gasoline, rooms and meals and other “luxury” or sin items. You state taxation agency can tell you what is taxable and what is not. Also, they usually have guidelines for assessing the taxes.

Records to Keep

A good rule of thumb is that if an item is related to a business and does not take up inordinate space, keep it and file it away for future reference. This is difficult for those not used to doing so, but you never know when something will be needed for referral. Even something as benign as purchases for office improvement can prove to be vital if there are questions about your tax filings or you encounter an audit request. Too much information is better than too little.

Good record keeping will help you accomplish the following

Monitor the progress of your business: Good records keeping give you an idea of where you are, where you have been and what steps you had to take to get here. They also are a good way to remember why you did what you did and what the prevailing wisdom for certain pricing, service or purchases decisions.
Prepare tax and financial statements: Good records allow you to pinpoint where you are financially and give you the backing you need for your conclusions. Tracking down accounting errors is also easier with good records keeping. This not only is invaluable for tax reasons, it also will help you when assembling applications for credit or loans.
Receipt identification: You probably will not remember in December what you purchased last January. You also will probably not remember every little source of income you received year round. Keeping detailed records of all receipts and expenditures is key to remembering all these details.
Prepare and support your tax returns: Good records provide a backup for your fiscal calculations on you tax returns. This is not only smart, it is also necessary in case you are ever audited. Also, if your state has an income tax, making an audit at the state level possible as well as the federal, keeping records in triplicate will make sure you are prepared.

Types of Records to keep

In general you should keep track of all

·         Gross Receipts
·         Expenditures
·         Purchases
·         Assets

Tax Reporting Methods

Federal Taxes

Income Tax: Depending on how your beauty business is set up this can be done through the business or by investors, according to their total investment and proportional profitj

Employment Tax: These are taxes you pay on behalf of your employees to ensure they are up to date on tax liabilities. They include Social Security and Medicare, Income withholding, unemployment taxes.

Self-Employment Tax: This covers the above mentioned employment taxes for you. Primarily self-employed individuals pay this tax.

Excise Tax: These are taxes you pay when you purchase a specific good, bush as gasoline. They are usually included in the price of the product. Some excise taxes include activities such as wagering or on highway usage by trucks.

State Taxes

Your state will have different taxation methods dependent on where you live. These are in addition to federal requirements. To determine what you have to pay, you need to contact your state office of revenue or taxation and ask for consultation. You can do this when you complete and deliver your tax registration papers mentioned earlier.

Most states have state income tax that is administered much like the federal tax. Most often charge some fee or tax for the privilege of doing business in the state. Some states have employment taxes like the federal system and some have a statewide property tax, which is a tax on your property’s assessed value.

In addition to paying your state and federal taxes, you will probably have to pay local taxes as well. These can include operating taxes, property taxes, sales taxes and in some cases, income taxes. The only way to be sure is to visit your local town or city hall and check it out.

It is a good idea to invest in software accounting package that tracks your local, state and federal taxes. This not only will help you keep track of your obligations, it will also teach you how the taxation system works in your locale. That is invaluable for figuring out how to reduce your tax burden over the long haul.