How To Easily Take Care Of Your Freelance Makeup Artist Taxes
Being a freelancer, independent contractor or small business owner can be sometimes frustrating as there are so many things you have to do in terms of tracking your financials and tax filing. After all, you are a sole proprietor and you are your own boss. In the end, however, it is all worth it. Just like other freelancers, makeup artists can save hundreds (even more) of dollars at tax season by claiming related-business deductions on a Schedule C as these write-offs can lower their taxable income. Here is everything you'll need to know to take care of your freelance makeup artist taxes.
What are business expenses?
During tax time, after you use a 1099 tax rate calculator to see how much federal tax (Social Security and Medicare taxes) you'll owe on the income you make for the year, you may feel a bit overwhelmed. Deductions help you lower your taxable income for your tax return so you would pay fewer self-employment taxes.
Business expenses must be both ordinary and necessary. What this means is expenses should be pretty common and helpful for your business. For example, if you run a sandwich shop, the cost for bread and electricity (to keep your ingredient cool) are ordinary and necessary. To be deductible, a business expense must be ordinary and necessary. An ordinary expense is commonly used in your trade or business. A necessary expense refers to an expense that is mandatory and helpful for your trade or business.
It is important to separate business expenses from the following expenses:
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize.
- Business start-up costs
- Business assets
Let’s say, you purchased a couple of hundred-dollar worth really fancy makeup equipment, and you expect to use this equipment over the next 10 years, you cannot write this off in the current year as a supply expense. You should capitalize it and then depreciate it over a certain amount of period.
Note: You can elect to deduct or amortize certain business start-up costs. Please refer to chapters 7 and 8 of IRS Publication 535, Business Expenses for more information.
Generally, you cannot deduct expenses for personal use. These commonly include personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. You cannot write off your hairstylist's cost as it is not required for your 1099 job.
For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible.
Business Use of Your Home
If you use part of your home for your makeup business, you may be able to deduct expenses for the business use of your home. There are two ways to write off your home office expenses.
- The simplified option: Multiply the square footage of your office (up to 300 square feet) by the standard rate of $5.
- The actual expense method: Add up the expenditures related to your home office including:
- Direct expenses – office supplies and repairs to your office (e.g. paint)
- Indirect expenses – mortgage interest, insurance, and utilities. You’ll divide the total cost of these expenses by the percentage of your home that’s used for business.
Check out this article on if you should use the simplified method or actual for claiming the home office deduction.
Business Use of Your Car
If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. There are two methods of calculating the business use of your car - Actual Expense Method vs Standard Mileage Method. If you qualify to use both methods, you’d better calculate your car-related expenses both way and then choose the method that generates the biggest deduction.
Actual Expense Method
The Actual Expense method is based on the expenses you spend during the operation of your car. It includes:
- oil changes
- repairs and maintenance
- car tires
- car registration and license fees
- car washes
Standard Mileage Method
The other method you can use to calculate the business use of your car is called Standard Mileage. You can deduct car expenses based on the number of miles driven at the published IRS rate, which is updated annual. For tax year 2020, the amount per mile is 57.5 cents per mile. If you drove 5,000 miles for business purposes for 2020 year, the deduction will be $2,875 (5,000 miles X $0.575 = $2,875). If you choose to take the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses like gas, oil changes, insurance and repairs. Instances that can be considered business-related mileage is as follows:
- Between your home office and an appointment, as long as you are not commuting to a permanent place of work
- Between appointments or from your last appointment back to your home office
- On work-related errands, like picking up work supplies, or attending a master class or beauty trade show
Other Types of Business Expenses
- Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.
- Makeup Kit Tools and Supplies – All of the tools you buy for makeup such as brushes, wipes, color powders are deductible.
- Advertising - If you promote your business using social media, google, signs, postcards and more, these advertising and marketing expenses are all deductible.
- Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
- Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
- Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession. Any health insurance-related costs can qualify as a 100% deduction for makeup artists
- Cell Phone Bills: You can deduct phone bills that are used for business purposes.
- Professional Development – If you take any seminars or classes to do better at your makeup business, you can write off those kinds of professional development expense. This includes:
- Conventions or Expos
- Online makeup classes
Pay Your Estimated Taxes
The United States income tax operates on a system where you have to pay income tax as you earn or receive your money during the year. In order to do this, the IRS requires folks to make quarterly or estimated tax payments four times a year on the taxes they think they will owe.
It is important to note that if you fail to make payments or do not pay enough in quarterly taxes, there is a penalty. To avoid this, calculate your installments using this quarterly estimated tax payment calculator, and then send in the four equal amounts to the IRS. If you plan on getting paid in different amounts throughout the year, you can make varied payments by taking advantage of the annualized installment method.
Quarterly tax payments are due around the same time every year. The dates are:
- April 15
- June 15
- September 15
- January 15 of the following year
As a makeup artist, you will have costs that are specific to your industry, as well as expenses that are more typical for any freelancer who is self-employed. You can keep clean record keeping of your deductions with a business card, bank account or use a 1099 expense tracker app to do it for you. By knowing all possible and applicable makeup artist tax deductions, you’ll be fully prepared for tax season and take advantage of being a freelancer!