The following is a copy of a recent letter outlining current tax problems faced by the hair & beauty industry today.
Dear Cosmetologist:
I have enclosed a copy of our year-end newsletter, along with some other promotional material. Perhaps you share my frustration with our current political situation. In any event, I hope you find this material entertaining.
Despite our attempts at humor, we take our tax responsibilities very seriously. Our commitment to provide the highest level of quality in our services is backed by the enclosed "Client Bill of Rights." We believe we are the first accounting firm in the nation to announce such a comprehensive level of client rights. We will continue to strive to improve and innovate in order to provide the best services possible.
When I started my business, over 30 years ago in Greenwich Village, NY, I developed a small niche in the hair care and beauty industry. I have first hand experience in every phase of the business, from tax preparation for salon assistants to accounting for human hair dealers. As a result, I have gained a keen awareness of the tax problems that you currently face in your work.
Did you know that the cosmetology industry is currently under attack by IRS? They finally discovered that a large amount of unreported cash income is being generated. Due to an increase in audit activity, I am making the following recommendations to everyone in the salon business:
Be very careful in recording your gross income. Owners and all employees should report a minimum of 8% of service revenue as tip income. Note that this is only a starting point. IRS has developed special audit programs and techniques just to ferret out unreported income by salon owners and employees, including inspection of appointment books and observation of walk-in trade. A typical audit would also include examination and analysis of credit card charge slips, invoices for laundry services, supplies, and merchandise purchases.
Formalize your understanding with regard to "chair rentals." Although you and I may consider a payment as rent or commission, the IRS has authority to reclassify these payments as wages. If this happens you will become liable for Social Security, employment taxes, interest, and severe penalties. In making this determination IRS considers matters such as how rates are determined, who maintains the appointment books, who collects the money, who pays for supplies, who pays for damage to the chair, and who pays the phone bill.
We also provide a full range of tax law consulting and income tax preparation services for hair salons and hair stylists. Our offices are conveniently located in NY City and upstate New York.
Respectfully yours,
To contact us Email to Masullo@catskill.net