How self-employed barbers and hair stylists pay themselves pt. 2 of 2

Self-employed barbers and hair stylists typically fall into two categories when we talk about business entities – they’re either sole proprietors or LLCs. Last week I talked about how the majority of barbers and hair stylists are taxed as sole proprietors (yes, even if you’re an LLC) and when you’re taxed as a sole proprietor, you pay yourself by transferring funds from your business account to your personal account – or if you don’t have a business account, when you pay for something non-business related.

If you’ve been a barber or hair stylists more than 5 years, there’s a very good chance that you’re paying yourself more than 50k a year. And if that’s true, I normally recommend those barbers and hair stylists to make sure they’re an LLC (if not already) and look at the savings that come along with being taxed as an S-Corp. 

When you’re taxed as an S-Corp, you’re able to put yourself on payroll and save money on self-employment tax. Let me be very clear, being taxed as an S-Corp comes with more complexity and having a payroll service is super important. I do bookkeeping and taxes for barbers and hair stylists, but I won’t even touch payroll and all that comes with it. Lol

I don’t say that to scare you, the pros (in my opinion) outweigh the cons, especially with the more money you make. In fact, one of the biggest benefits in my opinion is that lenders don’t make you jump through hoops to prove your income when you’re on payroll and receive a W-2 at the end of the year. Only business owners who elect to become S-Corps are able to receive a W-2 (I’m not covering C-Corps where you can also put yourself on payroll). 

If you’re considering the tax savings that come along with being an S-Corp, talk to your accountant and have them run the simulations to see if it makes sense for your unique situation.