Taxes barbers and hair stylists have to pay when they're self-employed

Have you ever wondered what taxes you’re responsible for when you booth rent or rent a salon suite? No one enjoys paying taxes, but when you’re a business owner and self-employed it’s important to have a basic understanding of Federal Taxes. It’s much easier to understand Federal Taxes when you’re self-employed when you first understand how Federal Taxes are handled when someone has a regular job where the taxes are taken out for them (think commission or salary jobs). 

When you work for someone else, there’s a gross amount on your paycheck and then there’s a net amount. In an equation format this is what it looks like:

Gross Pay – Taxes = Take Home (Net) Pay

The Federal taxes consist of:

• Federal Unemployment (100% paid by employer)
• Medicare (50% paid by employer 50% paid by employee)
• Social Security (50% paid by employer 50% paid by employee)
• Income (100% paid by employer)

But when you’re a business owner and employ yourself, this responsibility falls on you and here’s what you need to understand. There are 3 Federal Taxes which you're responsible for 100%: 

• Medicare
• Social Security Tax
• Income

Because you’re self-employed and don’t have anyone to help split the Medicare and Social Security taxes with you’re responsible for the full amount which equals 15.3% between the two. 

It’s important to stay on top of these taxes which are due quarterly to avoid penalties and problems with the IRS. 3 top reasons to make sure you stay on top of these taxes: 

1. Contributing to Medicare ensures you’ll have health coverage when you reach the qualifying age.
2. Contributing to Social Security ensures you’ll have a form of retirement savings when you reach the qualifying age.
3. When you go to make large purchases with loans (both personal and commercial), you’ll want to show tax records or no one will take you serious. 

I hope this has been helpful and encourages you to stay on top of this responsibility as a business owner.