How To Depreciate a Beauty Salon for Taxes | Small Business

Depreciation is loss of value over time and with use. If you own a beauty salon, you likely use a range of equipment that has a limited lifetime. So, treat the decrease in value of these items as an expense. Annual expenses reduce your annual net income, which in turn reduces the amount of tax you must pay each year. Although calculation of depreciation is relatively simple, you may want to use the services of a qualified accountant to ensure that all items in your beauty salon are depreciated properly.

Identify Depreciable Items

  1. Beauty salons and barber shops are equipment-heavy businesses. They use large amounts of equipment, including hair dryers, brushes, sinks, wood lamps, mirrors and barber chairs. These items lose value over time as the end of their useful lives draws nearer. When you file your taxes, take into account this loss in long-term value by depreciating the items. Items subject to depreciation are “fixtures” — i.e., those that require a large financial investment and cannot be moved or removed easily. Thus, smaller, portable items such as brushes, curlers and hair dryers are not subject to depreciation, but barber chairs, sinks and heat lamps are.

Determine Life Expectancy

  1. There are several methods of depreciation, but the far most common is the straight-line method. Before you depreciate your equipment, you must first determine its useful life expectancy. According to the Internal Revenue Service, most equipment found in a beauty salon has a useful life of five years. This includes electrical equipment such as heat lamps. Furniture, such as tables and barber chairs, has a longer useful life expectancy of seven years. To make sure you are not paying too much on your taxes, hire the services of a certified accountant. The accountant takes an inventory of your beauty salon and lists all of the items subject to depreciation along with their useful life expectancy.

Build Depreciation Schedule

  1. Once you know the useful life expectancy of your equipment, build a depreciation schedule for each item. This requires a relatively simple calculation with the use of a calculator. Let’s say you bought a heating lamp one year ago for $1000. According to the IRS, a heating lamp typically has a useful life of five years. Dividing $1000 by 5 gives an annual depreciation of $200. So, every year, the heating lamp falls in value by $200, and when it’s 5 years old, its value is zero. If it’s 1 year old, subtracting $200 from $1000 gives a current value of $800. Repeat this calculation for every item in your beauty salon subject to depreciation.

Account for Everything

  1. When you file your taxes each year, you treat depreciation as a loss in income. This is because depreciation is an expense. As you pay tax on your income, you end up paying less tax if the equipment used by your business is subject to depreciation. When you compute your net income on your annual income statement, subtract the amount of annual depreciation you suffered in the past year. If the only depreciable item used by your business is a heating lamp, you reduce your net income by $200 each year. Remember to account for all of the depreciable equipment in your beauty salon to ensure you are not paying too much tax.

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