Home Salons and Spas…Is This a Better Way to Get Started?
With so many avenues to explore after cosmetology, barber or massage therapy school, a newly licensed professional may feel a bit overwhelmed. Some would say that they should work at a salon or spa for a few years to get the feel of how things are done. That may be wise advice, but there are always those that want to jump in feet first! Whether you are just getting out of school and want to be your own boss NOW, or you have been working for a while and have decided that are ready to start your own company, this article is for you!
Having a home salon or spa can lead to some tricky questions about what you can deduct as legitimate business expenses. Carol, a recent cosmetology graduate, has decided to open her own home-based salon. She lives in a quiet neighborhood, has ample parking and is going to run her salon out of her kitchen, because it is easy to clean the floor and she has the sink near. For this example, we will assume that she has met all legal and health code requirements. This home salon space is probably not going to qualify for a tax deduction, even though this is where she primarily conducts her business. The IRS states that the “specific area of the home must be used regularly and exclusively as your principal place of business”. Since Carol and her family are also going to be using this area for cooking, eating and other activities, she cannot deduct it.
Rachel has decided to start a home-based spa and has converted a bedroom, in her home, into a massage room. She has her table set up in there, water fountains, candles, music, as well as aromatherapy products and extra sheets and towels in the closet. Since this room is used exclusively for her business, this space in her home would qualify as a business expense.
To determine if you can deduct the use of your home, there are a few tests that must be met. It must be the principle place of your business used exclusively for your work. If you have an outside location, in addition to a home office, you must regularly conduct business and meet with clients in the home office space. In some instances, a room that is used for storage can also be can also be deducted providing that it meets certain standards, like using it regularly for storage purposes and you are in the business of selling the products you are storing.
Once you have determined whether your home business area qualifies for the deduction, you can start keeping track of the expenses that are allowed. There are some expenses that you can take a full 100% deduction for, such as repairs or painting of the room that your office will be located in. Typically, anything that is specific to the office area will qualify for a full deduction. You can take a depreciation deduction on your home as well as other expenses that you pay to maintain the house, such as insurance, utilities, security monitoring and trash services. These will be based on the office to house ratio. To calculate this, you would take the square footage of your business space and divide it by the total square footage of your house. If your office is 15% of the total square footage of your house, you can take 15% of those expenses as business expenses.
Now, there are some expenses that you can’t take. Lawn maintenance, painting for other rooms of the house are not allowed AND the IRS is not going to like the fact that you tried to pass off that new in-ground swimming pool as a business expense!
There are many good reasons to start a home salon or spa, and the tax benefits are numerous. Just be sure that you have consulted with your local governments, Home Owner’s Associations and state Cosmetology Board to ensure your business actions are legal.
When your ready to start your business, contact Excerebus CPA Firm at email@example.com or 407-988-5647.
Categories: General Business