Frequently Asked Questions

1. Do I need to charge sales tax on all of my services?

Sales tax rules vary by state and by the type of service or product being sold. Understanding what is taxable can help avoid costly penalties and audits. In the state of Kentucky, however, you do not have to charge sales tax on your services. However, if you sell your business, you DO need to charge a sales tax on the sale.

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2. Should my workers be employees or independent contractors?

Worker classification is one of the most common compliance issues for salons. Misclassification can result in payroll tax liabilities, penalties, and interest. If your worker creates their own schedule and provides their ow ntools, they are considered an independent contractor. If your worker is given a schedule (i.e. Monday - Friday, 8am-5pm) by you, and you provide their tools, they are considered an employee.

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3. What records should I keep for my salon?

Good recordkeeping includes sales reports, receipts, bank statements, payroll records, vendor invoices, and tax filings. Organized records make tax preparation easier and provide protection during audits.

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4. How long should I keep business records?

Different records have different retention requirements. Keeping records for the appropriate amount of time helps protect your business if questions arise later. In general, it is best practice to keep all records for the past five (5) years.

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5. What should I do if I receive a letter from the IRS?

Don't panic. Many IRS notices can be resolved quickly when addressed promptly. Ignoring a notice often makes the situation more complicated and expensive.

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6. How often should I review my salon's financial statements?

Reviewing your financial reports monthly helps identify trends, monitor profitability, and catch potential problems before they become serious.

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7. Why is my salon profitable but I still don't have enough cash?

Profit and cash flow are not the same thing. Understanding where your money is going can help you make better business decisions.

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8. When are payroll taxes due?

Payroll tax deadlines depend on your filing requirements and payroll schedule. Missing deadlines can result in penalties even if taxes are eventually paid. Click here for a complete list of important dates.

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9. What expenses can I deduct for my nail salon?

Many ordinary and necessary business expenses may be deductible, including supplies, rent, software, advertising, payroll costs, and professional services.

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10. How can I prepare for tax season throughout the year?

Maintaining accurate bookkeeping, keeping organized records, and reviewing your finances regularly can make tax season much smoother and less stressful. It can also reduce your tax preparation fees when the accountant does not have additional "bookkeeping" work to do before preparing your return.

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11. What happens if my bookkeeping falls behind?

Many salon owners get busy running their business and bookkeeping gets pushed aside. Catching up sooner rather than later can prevent larger tax and financial issues. Hiring an outside accountant can help ensure the financial health of your salon.

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12. I started my salon years ago and haven't kept perfect records. Is it too late to fix things?

Not at all. Many business owners find themselves behind on bookkeeping, taxes, or compliance requirements. The important thing is addressing issues before they become larger problems. In most cases, there are solutions available.

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Don't see your questions? Ask MAS.