Salons & Spas
Booth renter 1099s, tip reporting, gift card liabilities, and retail sales tax for hair salons, barbershops, nail salons, and spas.
The Industry
Salons run on people, and those people get paid in very different ways. Some stylists are W-2 employees earning hourly wages plus commission on services. Others rent a booth or chair and operate as independent contractors, paying the salon owner a weekly or monthly flat fee. Some shops have a mix of both arrangements happening under the same roof. Then there are tips. Credit card tips flow through the payment system and show up on bank statements. Cash tips frequently go untracked. The IRS expects all of it reported, and salon owners carry specific obligations around tip reporting for employees that most don’t fully understand until there’s a problem.
Revenue comes from several places at once. Services are the core, but retail product sales add another layer. A client pays $120 for a color treatment and $35 for a bottle of shampoo on the same ticket. In Florida, those two items have different sales tax treatment. Gift cards sold in December don’t become income until someone redeems them, and that might be March or it might be never. Prepaid packages for facials or massage sessions create the same timing question. Med spa memberships bring in recurring payments that need to be recognized over time as treatments are delivered. Each of these streams needs to be tracked separately or the financial picture is wrong from the start.
Who This Covers
Who This Covers
Hair salons, barbershops, nail salons, day spas, med spas, massage therapy practices, and beauty studios in the South Shore and greater Tampa Bay area. Any salon or spa operation dealing with tipped employees, booth renters, retail product sales, or prepaid services.
What Makes It Complex
What Makes It Complex
Mixed worker classifications with employees and booth renters side by side. Commission-based pay calculations that change by stylist or service type. Tip reporting and allocation across team members. Retail sales tax collected separately from service revenue. Gift cards and prepaid packages creating liability tracking requirements. Point-of-sale platforms that batch deposits and don’t line up cleanly with daily sales totals.
What We Handle
Payroll for salons means handling commission calculations, tip reporting, and varying schedules every pay period. We process payroll with the correct tip credit calculations and make sure withholdings account for reported tips. Booth renters get tracked separately with W-9s collected throughout the year and 1099s filed when they’re due. Sales tax gets calculated on retail product sales and filed on time. We reconcile what your point-of-sale system reports against what actually hit the bank, because platforms like Square, Vagaro, or Boulevard hold funds for different periods and batch deposits that don’t always match up neatly with the day’s transactions.
Gift cards sold get recorded as liabilities, not income. When they’re redeemed, the revenue moves to the correct period. Retail product inventory gets tracked so you know what’s on the shelf, what’s been sold, and what’s disappearing without explanation. Back-bar supplies, the products you use during services, get separated from retail inventory so your cost of goods sold reflects what you’re actually selling to clients. Tax returns capture the deductions salon owners are entitled to, from equipment and furniture depreciation to continuing education and licensing costs. Quarterly estimated taxes keep you from getting hit with a surprise bill in April.
Payroll, 1099s, and Sales Tax
Payroll, 1099s, and Sales Tax
Commission and tip payroll processed correctly every pay period. Tip credit calculations and proper reporting to the IRS. Booth renter payments tracked with W-9s on file and 1099s prepared at year end. Sales tax calculated on retail product sales and filed on schedule. Point-of-sale deposits reconciled to the bank monthly so nothing falls through the cracks.
Revenue Tracking and Tax Preparation
Revenue Tracking and Tax Preparation
Gift cards recorded as liabilities and recognized as revenue when redeemed. Prepaid packages tracked per visit so monthly income reflects actual services delivered. Retail inventory separated from back-bar supplies for accurate cost of goods sold. Business tax returns prepared with equipment depreciation, training expenses, licensing fees, and other deductions specific to salons and spas. Quarterly estimates calculated based on actual income patterns.
What Goes Wrong
The booth renter question trips up more salon owners than almost anything else. If someone rents a chair but you set their schedule, require them to use your products, and control how they deliver services, the IRS may reclassify them as employees. That comes with back payroll taxes, penalties, and interest going back years. It happens far more often than salon owners expect. Tips create the other common problem. Cash tips that go unreported create liability for both the stylist and the business. Credit card tips that aren’t properly allocated to the right team member throw off individual pay records and generate W-2 errors at year end that are painful to unwind.
Gift cards sold during the holidays inflate revenue in November and December when none of that money has been earned yet. A salon that sells $8,000 in gift cards during the holidays looks like it had a record quarter. But that money represents services that haven’t been delivered. When those gift cards get redeemed in January through April, the books show artificially low revenue because the income was already counted months earlier. The result is financial statements that don’t reflect how the business is actually performing month to month. Prepaid packages do the same thing. Selling a 10-session facial package isn’t $600 in revenue today. It’s $60 in revenue each time the client walks in the door.
Worker Misclassification and Tip Errors
Worker Misclassification and Tip Errors
Booth renters treated as independent contractors when the working relationship looks more like employment. IRS reclassification triggers back taxes and penalties that can reach tens of thousands of dollars. Cash tips going unreported creating audit exposure. Credit card tips not allocated correctly to individual employees, resulting in W-2 problems and payroll tax discrepancies at year end.
Revenue Distortion from Gift Cards and Packages
Revenue Distortion from Gift Cards and Packages
Gift card sales recorded as income when sold instead of when redeemed. Holiday gift card rushes creating an artificial revenue spike followed by months of understated income. Prepaid service packages counted at full value on the day of sale instead of recognized per visit. Monthly financial statements that swing wildly and don’t reflect actual business performance, making it impossible to plan or spot real trends.
What Changes
Payroll runs smoothly with commissions and tips calculated correctly every period. Booth renters are properly documented and 1099s go out on time without a scramble in January. Gift cards tracked as liabilities and recognized when redeemed, so monthly revenue reflects actual services delivered rather than when someone bought a gift for their friend. Sales tax filed accurately on retail products. Your point-of-sale system reconciled to the bank every month so deposits, fees, and chargebacks are all accounted for and nothing slips through.
You can see which services generate the most profit and which ones barely cover the stylist’s time after product costs. Retail margins become visible so you know whether that shelf of premium shampoo is earning its space. Financial statements tell you whether the business is growing based on real numbers, not distorted by gift card timing or prepayment spikes. Tax returns prepared by someone who understands how salons and spas actually work, capturing equipment depreciation, build-out costs, training expenses, licensing fees, and the other deductions that belong on your return. You focus on running your salon. We handle the financial side of the operation.
Clean Payroll and Compliance
Clean Payroll and Compliance
Commissions calculated and tips reported properly every pay period. Worker classifications documented and defensible. 1099s for booth renters prepared without the year-end scramble to collect W-9s. Sales tax on retail products filed on time. Audit exposure reduced because the records are organized and the classifications are correct from the start.
Financial Clarity for Real Decisions
Financial Clarity for Real Decisions
Monthly statements that reflect actual performance without distortion from gift card sales or prepaid packages. Service-level profitability showing which treatments and which team members drive the most margin. Retail product performance tracked so you stock what sells and stop carrying what doesn’t. Tax preparation that captures every deduction you’re entitled to and quarterly estimates that keep April from turning into a cash flow problem.
Tampa Bay's Small Business CPA Firm
First Step:
A Short Conversation
Tell us about your business and where you need support. We'll walk through your situation, answer your questions, and give you a clear quote.
