Meeting Tax Obligations

Article Published in Stylist Magazine, February 2014

We may think that obtaining a beauty license makes us professional, but nothing demonstrates our commitment to being professional like paying our taxes. Granted, none of us aspires to this industry because we want to give the government its due, but it’s one of our greatest responsibilities nonetheless. Regardless of our personal motives or career goals, the government does not value our “artistry,” “technical expertise” and/or “client relations;” beyond basic consumer safety, it’s main concern is financial. Whether we work alone or with others, through good economic times and bad, our tax returns represent the financial health of our salon businesses, and our success as beauty professionals.

Before proceeding, let me clarify that I’m not a tax professional, nor should anything I write be taken as legal advice. You’re responsible for your own tax obligations, and I strongly recommend that you seek guidance from a qualified professional to ensure your compliance with federal, state and local tax laws and regulations. That being said, I hope you find the remainder of this article informative.

At the federal level, the Internal Revenue Service (IRS) relies on our voluntary compliance to accurately report our income under penalty of perjury. The effort this takes varies according to your employment status; an employee completing Form 1040 (U.S. Individual Income Tax Return) using information provided in a Form W-2 (Wage and Tax Statement) has a fairly simple task. As a salon owner with employees, I have a more complex task, which includes a Schedule C (Profit or Loss From Business, Sole Proprietorship). Beauty professionals who have incorporated their businesses, and/or have business partners have different forms to complete. Needless to say, but I’ll say it anyway, the more complicated the circumstances, the more important it is to engage a tax professional.

Timely payment of taxes due should be easy by having the appropriate amount of money withheld from paychecks or making quarterly estimated tax payments throughout the year. That may sound condescending and insensitive, particularly toward those who may struggle to pay their taxes, but it’s not meant to be. Money is one of those subjects that's hard to discuss without the risk of someone feeling uncomfortable or inadequate. Our relationship with money is very personal and private, typically not something we readily share with others. We all could benefit from knowing how to better manage our personal and business finances.

Paying our taxes impacts many aspects of our financial lives. For example, filing successive tax returns determines our ability to obtain credit and qualify for loans, and the amount of future retirement benefits through the collection of Social Security taxes, known as FICA (Federal Insurance Contributions Act) and/or SECA (Self-Employment Contributions Act). The legal consequences for NOT filing tax returns or falsifying information are civil penalties (underpayment tax penalty and interest, which can accrue indefinitely) or criminal prosecution. With the exception of tax attorneys, most people want to avoid any involvement with the IRS.

I've written extensively about being professional; frankly, I’m tired. Not of doing nails for my clients, but of explaining to other manicurists and salon owners why they should do them legally, and to consumers why professionalism matters. Is it really that hard to do the right thing? Given the proliferation of salons and individuals who could generously be described as being “unprofessional,” it's obvious that you don't need to be professional to make money in the beauty business. If many consumers don't seem to care whether or not a salon and its service providers hold valid licenses, do you think they care if taxes have been paid? Probably not, and that’s unfortunate.

When we’ve filed and paid our taxes, there's no certificate to display on the wall, or any other acknowledgment of our commitment to the beauty profession. A tax return is different from the licenses issued by our state governments which allow us to provide services for compensation in the first place. And while I don’t tolerate unprofessional behavior, I don't spend my days obsessing about it either. Setting a good example is enough work. It's really up to you to develop a clientele and associate yourself with colleagues and businesses who support your efforts to be professional, including meeting your tax obligations.

I could probably strategize more tax savings, and invest even more for “retirement,” but I’m very comfortable with my financial position. It’s mid-January, and I’m just days away from submitting my numbers. I’m never more grateful for technology than tax time, thanks to software and other online resources for making my finances more manageable. Writing my last estimated tax payment check, I’m optimistic that my trusted tax professional has done his job to ensure that I don’t dread Tax Day. Something to consider: doing your taxes may be distressing, but thinking about your death more so. Estate planning - yes, you should be doing that also. You know what they say about death and taxes...

By Jaime Schrabeck, Ph.D.

Ignorance Is Not an Excuse

Article Published in Stylist Magazine, January 2014

Preparing for regulatory changes in the beauty industry would be so much easier if only we were all governed by the same rules and knew what to expect. If that’s our excuse for not being involved and informed, we need to get over it. Within any given state, the same rules apply to all, and even then, many licensees remain ignorant. We shouldn’t waste our time bemoaning the fact that rules vary by state (federal laws excepted) and that national licensing doesn’t exist. No matter how much we complain, the sovereignty of states to govern and protect their respective residents/consumers takes precedence in the absence of federal authority.

As salon owners and beauty professionals, we focus primarily on providing services to our clients, investing in products and continuing education to stay current. We don’t have much time or other resources to devote to governmental affairs seemingly beyond the salon. That’s unfortunate given the power of government to control how we work.

We often hear that it takes "political will" to achieve regulatory change. This common, but rather ambiguous, term has been given this “dynamic” definition in a very interesting research paper (presented to the 2008 Annual Meeting of the National Communication Association):

"Our ideal-type definition of political will requires that a sufficient set of political actors with a common understanding of a particular problem on the public agenda genuinely intends to  support a commonly perceived, potentially effective policy solution. This definition includes four  different components, which we deem necessary conditions:  

1. A sufficient set of political actors
2. With a common understanding of a particular problem on the public agenda
3. Genuinely intends to support    
4. A commonly perceived, potentially effective policy solution."
   (Post, L., Raile, A. & Raile, E., "Defining Political Will," p. 5).

If political will doesn’t seem relevant to your work, consider this. Many of the greatest challenges facing our industry are regulatory in nature: unlicensed activity, employment law, health and safety, education, etc. Can we expect legislators and bureaucrats to address problems without some guidance? How are they to know that a problem even exists? What evidence will they gather and which experts will they consult? What are the consequences, intentional or not, of the proposed solutions? When we allow changes in our industry to happen without our influence or support, it’s not likely that we’ll welcome them. Conversely, when we tolerate inequities, incompetence and obsolescence in our governance, we’ve failed ourselves as professionals.

Apathy does not solve problems; in fact, it can create even more. Not long  ago, some legislators in Indiana and Florida (among other states) wanted to deregulate the beauty industry. The potential consequences of such deregulation motivated beauty professionals and consumer advocates to lobby against this, but what would have happened had they failed to act? No matter how obvious or necessary something may seem to beauty professionals, what we consider “best practices” will not be reflected in legislation/regulation without active participation.

In past articles, I’ve been very vocal about being proactive, rather than reactive, to government, particularly at the state level. To learn more about how your state board operates, visit its website, sign up for email notifications and read the rules, meeting agendas/minutes, reports and public notices. Doing this research doesn’t cost anything (except time), but it won’t change anything either unless you use that information.

It may seem hard to believe, but an individual can influence the governing process. If you really want to make a difference, you need to be seen and heard at board meetings, and not just once. With consistent effort, your concern can evolve from a a public comment during a board meeting to a regulatory change, with the necessary steps in between. For example, I want California’s Board of Barbering and Cosmetology to enforce its laws prohibiting mobile services, or change its laws to protect consumers and establishment owners from unlicensed activity. After I made a public comment, the issue was placed on the next meeting’s agenda, prompting the board’s staff to research other state’s laws and make its own recommendations.

When issues concern me, even if they’re not directly related to my work as a manicurist and salon owner, I will freely express my opinion. For example, proposed legislation (in California’s state assembly) to authorize advanced skin care licensing does NOT have my support, as I’ve made clear in this statement to my colleagues:

As an advocate for the beauty industry, I want you to be aware of proposed bill AB 1153, introduced by Assembly Member Susan Talamantes Eggman District 13. If successful, this bill would give California’s Board of Barbering and Cosmetology the authority to license "master estheticians," requiring an additional 600 hours of "practical training and technical instruction" beyond what's currently required (1600 hours for cosmetologists, or 600 hours for estheticians).

More important, if this bill becomes law, it would redefine and expand the scope of practice of “master estheticians” to include body treatments (wraps, scrubs, etc.), currently unregulated services that your business may offer. In effect, this law would require that establishments like yours would have to use licensed "master estheticians" to provide these services.

If you’re concerned about the potential impact of this bill on your business, please contact your legislator to express your thoughts.

By Jaime Schrabeck, Ph.D.

Making Changes for a Better Future

Article Published in Stylist Magazine, December 2013

It’s likely that you’ve already read many articles about having passion for the beauty industry. This won’t be one of those articles. No amount of desire or enthusiasm can compete with the reality of actually doing something. You may want to improve your business, but what does that really mean, and are you capable of making the appropriate changes?

As the holiday season approaches, many salon owners and nail professionals convince themselves that it’s too late in the year to make any changes to their business. No matter how frustrated or desperate they may be, they worry that any change would be too disruptive, especially to their clients. Instead, they’ll continue to struggle and wait for a better time to resolve their problems. That’s ridiculous; there truly is no better time than the present. Stop worrying about everyone else and consider yourself first, not your business, but you as a person. If you’re abusing your body, that’s a problem. If you can’t pay your bills, that’s a problem. If you’re neglecting your family, that’s a problem. If you dread being at work, that’s a problem. More important, they are your problems to solve, sooner rather than later. Why wait until the new year to make resolutions when you can change now?

Change in itself won’t solve your problems unless you understand your contribution to them. Taking responsibility and owning your mistakes can very difficult when it’s so easy and very tempting to blame others. If someone were truly a victim, I could sympathize, but would still expect some decisive action. Failing to act only reinforces a sense of powerlessness. It’s in those moments that you may become a victim of your own learned helplessness. Being passive is not the way to do your best work or operate a successful business.

It’s not possible to control everything, but positive changes/improvements/progress can result if you act according to your priorities. Some specific examples come to mind when I reflect on what’s happened in my life during the last year. I entered this year planning for the possibility of one major professional change (moving my salon), but was quickly faced with the reality of an even greater change: my sister’s decision to move her family back to Clovis, three hours away. This impacted me both personally and professionally, but not in a negative way. We no longer share a household (I’ve since moved to a new residence) and she’s reverted to her “every other week” schedule at the salon. This was a big change, especially for the clients whose standing appointments had to be rearranged starting in August. To their credit, her clients were very flexible, understanding that family was her priority.

In the meanwhile, I had to consider the future of my salon business and my own priorities. Professionally speaking, working directly with clients remains my greatest source of satisfaction and income, but changes were necessary to make it more convenient and enjoyable. Confident that I’d want to provide nail services for years to come, I was willing to commit to a long-term lease (7 to 10 years). While I employed 2 other manicurists who work hard, I was no longer willing to staff a salon 6 days a week, or work more hours myself to meet the terms of a retail lease. That was neither reasonable nor necessary given the “by appointment only” nature of my business. When it became apparent that modifying my lease and the interior of my existing space wasn’t viable, the search for the ideal space intensified.

Having viewed more than a dozen options, many of which could have worked had I compromised, I discovered my current space and negotiated a ten-year lease. Needless to say, I won’t have to change salon locations for a while. Moving the salon to this larger, more accessible space required an investment of money and labor, but I purposefully avoided many of the costs associated with my previous space, such as installing flooring and painting walls. The new space already had beautiful hardwood flooring and walls painted in my color scheme. For the most part, the electrical work involved changing light bulbs to eco-friendly and cost-effective LED lighting. I did invest in new power leather recliners and the latest version of the Mitsubishi Jet Towel hand dryer, which have made the salon seem even more luxurious.

Other then a few minor hiccups, the transition to the new location has been relatively smooth. For example, a few clients have arrived late having first visited the old location. Overall, the reaction has been incredibly positive. Clients tend to be very amenable to change when it’s viewed as progress. Even the change in salon hours (from Monday thru Saturday, to Tuesday thru Friday) hasn’t been a problem because it doesn’t affect standing appointments, the core of my business. My salon business has evolved as I have, and how it currently functions has eliminated the problems I once perceived. Instead of making new year’s resolutions, I can set goals for the future based on what’s working and enjoy the benefits of changes already made.

By Jaime Schrabeck, Ph.D.