Ep. 6 - Paying Estimated Taxes As A Barber, Braider, Hair Stylist Or Any Other Hair Professional

What'S up guys welcome to another episode of the money? Savvy ceo, i am jennifer drooby. I am a former multi-six figure, hair salon owner and now a small business tax analyst and i come to you every single week with inspiring stories or a message on entrepreneurship and taxes, so that i can help transform hair pros into ceos. So today i'm going to talk about estimated tax payments. I had a barber comment. I think, on one of my last videos just asking about the estimated tax payments and i really want to break this down a little bit more. I know it's like late in the year here we are at the end of november essentially, and you should have been making tax payments throughout the entire 2021. I am going to be talking about 2021 rates and dates so um. It changes with the tax year, but it's pretty much the same. It may change slightly, but you'll get the whole idea. So i have some stuff written out that i want to make sure that i go over but make sure you leave any comments down below or shoot me a dm. You can reach me on ig at the money savvy ceo, so let's jump right on in so the first thing i want to make sure i explain is that this is applicable to um anyone who's self-employed and is a sole proprietor or a single member llc um, That means you have not elected to become in to be taxed as an escort, so just want to say that and if you're like how do i know if i'm elected to be a s corp, you probably aren't, because it's a pretty big deal and you would Know so the first thing that was the first thing second thing is um. I think a lot of people get estimated taxes mess up confused with the reporting of self-employment tax. So you have what's called the tax form es and then you have the tax form s e. I don't know why the government makes things so complicated or like similar, because i think that is what confuses a lot of people. So the 1040 es is the estimated tax payment form and it has the worksheet where you can calculate how much estimated taxes that you will be paying. And then there is the 1040se which calculates the self-employment tax due at the end of the year and that form is pulling in all of your tax payments that you made with the 1040es. So i don't want to confuse you anymore, so the irs does enough of that right. So let me break it down so the 1040es. That'S your estimated tax kind of form! That is what you're going to fill out and you're going to send in tax payments quarterly. So four times a year or four times for the current year, so for 2021, like i said, we're in november end of december practically but um. The tax payments are in four installments and it's april 15th june 15 september 15th and then january 18th of 2022. And that's for 2021, but um. Let'S go over these questions that i have here. So what are estimated taxes, so the united states has what's called a pay-as-you-go tax system, so that means, as you earn income you are supposed to pay your taxes as you go as you earn money you're supposed to pay taxes. Now, when you have a job, when you have an employer and you get a regular paycheck, then you have those taxes that are withheld from your paycheck and in the background what's happening. Is that employer is giving that money to the irs on a certain schedule? So um that's what's happening in the background, but because you are self-employed, that means you have to do that background stuff and you're still required to give the irs those payments. Although they're not withheld it's a estimated tax payment and again still the pay. As you go system, so as a business owner, someone who's self-employed, you're responsible for that yourself all right, so that's the that's what they are the estimated tax payments. Now you may be asking what taxes does that include. So i'm talking about federal taxes, that's number one state taxes vary, and i won't be talking about state taxes because a lot of states - and i won't be going over those but um as far as federal taxes, what i'm talking about are what's called self-employment. Taxes which are your medicare and your social security, and then you have what's called your just income tax and the united states works on what's called a progressive tax system. So that means the more money you make, the more taxes that you pay and i believe the highest tax rate right now is 37 percent so again, and i think the lowest is 10 percent. So, at the the less you make the less tax you pay and the more you make the more taxes you pay. So that's that progressive um income tax system that the united states has and those make up the estimated taxes that's being collected quarterly that you should be that you should send quarterly all right. So when are they due? I just went over that so for it changes every year, but the months are pretty much the same, but the tax day may differ, but for um 2021 you were supposed to submit those payments by april 15th june 15th september 15th and then now the last payment For 2021 is due january 22nd. 2022. So that's that payment schedule on when you're supposed to make them so um. Now that we got that kind of situated, i want to give you guys an example of what that will look like for a barbers, and i and i chose a barber because a barber reached out to me and asked about estimated tax payments. So i think it's only fair to use him as an example, so um yeah so but before we jump into that, i'm just going to pause for um a commercial break, a sponsor yeah, i'm sponsoring myself! So listen to my commercial. Never in a million years that i think i jen drooby would own a hair salon, but for five years i had a multi-six figure, hair salon where my hair stylist even made six figures, and i was right next door to a barber shop, and that was my First time seeing the booth rental model in play - and i got so scared that my hair stylist would eventually leave once they got their clientele that i said you know what i'm just gon na train my stylist to do it on their own. Make six figures without me and i'm gon na sell my hair salon. That'S exactly what i did so now. I put together a 10 week course, where i show hair pros how to go from where they are to six figure ceos in their business, because i didn't do hair i've never been to cosmetology school. I'Ve never even picked up a pair of razors or clippers. So i was always doing the back end stuff and because i was pretty much bored i didn't do hair. I had all the time in the world, i'm a nerd. I studied small business taxes and now i'm a tax, i'm a licensed tax analyst. So you get the best of both worlds. You have me who built a multi-six figure, hair salon in the hair industry, and you also get me as a tax professional. That'S also going to help you keep the money, not just make the money but keep it. So click the link below sign up for the wait list and when it opens up you'll be the first one to know. I would love for you to join me in this 10 week course called hair pro to six figure. Ceo, so make sure you sign up all right guys welcome back so now, i'm going to give you an example of how a barber would fill out this 1040 es and make estimated tax payments. Now i use the barber because it was the barber who reached out and asked me the question. So if you have a question specific to you, make sure you leave it in the comments, and i may do a video where i use you as an example, but for right now we're looking at mike the barber and i'm going to show you how he would Come up with his estimated tax payment amounts um, and this is something that he would do on his own. Like i'm about to break down, or if you work with a bookkeeper, you work with an accountant or cpa. They can sit down with you and do this with you all right. So i have five steps here and really the first one is estimating how much money you think you're going to make you can look at your prior tax return from the previous year, see how much you made there. That'S what i always recommend look at how much you made and then make projections. Do you think that you're going to actually do more? Are you slowing down? Are you going to make less so that really can be like your your starting point. Looking at last year's tax return and 90 000 would be how much you um the the um the profit, so not your gross profit, but your net profit. So, after all of your expenses, that's what he is saying that he's gon na list on his um schedule c for uh, sole proprietors or a single member llc, who is not elected to be an escort. So that's like a pre-step so step one, the official step one would be to estimate the self-employment tax. Now, if you remember in when we first started, i mentioned how this these estimated taxes really make up two different types of taxes. You have self-employment tax and then you have what's called income tax, so the estimated taxes are um. The way you calculate it is you take, and i i won't go into the whys. I just want you to get the what so the 90 000. That'S how much he estimated right this! Would you do this before the year starts and um or right at the beginning of the year, and you take the 90 000 and you're going to divide you're going to multiply that by 92.35 percent? And if we do that in this particular example, mike would get to the amount of eighty seven thousand one hundred and fifteen so um, we start there and then the next steps is a two-step process. Then he would take that eighty, seven thousand one hundred and one 115 and multiply that by 15.3 percent. Again i'm not going to go into where these numbers come from. They aren't random numbers. Just believe me - and these numbers won't really change unless something drastic happens with the tax code, because the self-employment tax rate is 15.3 percent, so um and then okay, because it's really hard for me not to explain this stuff. But the half of the 15.3 is what is taken away from 100. That'S what gives you the 92.35 percent, but i promise i'm not going any more technical than that. So you multiply the 87 115 times the 15.3 percent and that's going to give you 12 716 and 59 cents. That is one portion of the estimated tax for the year, which is the self-employment tax. Twelve thousand seven hundred sixteen point: five, nine now. The second step is to determine your taxable income and again, a good way to do. This would be looking at your prior year, tax return and, let's see so, for the 90 000. This is the new amount and you want to look at. What'S called the adjustments now, adjustments are what goes on your tax return to um um yeah, it's the adjusted gross income. Again, i'm not trying to go too technical, so i want to make sure this is very like plain, and i don't want to give you information that you don't really need, but basically you have a gross amount and then the irs allows you to make certain adjustments To your income that allow your allows your income to be less so you have less of a tax taxable income, less taxable income. Yes, so to give an example of these adjustments as a small business owner, you can adjust health insurance premiums. You can adjust retirement plan contributions and then another part of what's adjusted for is half of this self-employment tax. So let's say mike the barber last year he had about fifteen thousand dollars of adjustments because because he paid himself he paid his own health insurance premiums and let's say he also contributed to a retirement account for himself. So those would be adjustments to his income, bringing his taxable income down, which is a good thing and then he's going to add half of that self-employment tax and remember that self-employment tax was 12 716 and 59 cents. So half of that would be six thousand three hundred and fifty eight dollars. So when you combine those um, you have um an amount and then you have the um deduction. So the deduction is whether you are going to itemize or take the standard deduction for this particular example. Mike the barber is single. He has um, he has a child, he has a son, but him and the mother of his son. They claim the son every other year and this is mike's year not to claim so he cannot do head of household he's going to do single and for 2021. The standard deduction for a single person is 12 550. So we take 15 plus 6358 plus the standard deduction of 12 550 and we're going to deduct that we're going to subtract that from the 90 000., that's going to give you your agi, which is adjusted gross income, and that brings you to the fifty six thousand. Ninety two dollars, so that was step two. I hope i didn't lose. You guys um so a little bit of math, but i promise you. This is all elementary math. Just take it slow, rewind it. If you have to so step. Three is you're going to calculate your income tax. Now remember this is the second part of those estimated tax payments. You have self-employment tax and then you have the income tax. Now the income tax is what's that progressive tax? I was talking about so the more money you make, the more in the more the higher your tax rate is so based on the worksheet. This the irs always comes out with a worksheet. It'S called the um the tax rate for the tax year, so based on the 2021 tax rates that i just looked up on that sheet on that 1040es, there is a. There is a table with all of the tax rates for the current year and i took this 56 092 and i looked up where it was on the schedule on that table and i did the calculation and it said that, based on fifty six thousand ninety two Dollars the tax, the the income tax would be eight thousand eighty eight dollars and seventy four cents, so you can get to that on your own, using that tax form es. So that was step three. Almost there step four of this five step process. Is you wan na add those two taxes together to get the total estimated tax for the year, so the we would add the twelve thousand seven hundred and sixteen plus the eight thousand eighty eight point: seven four and together that gives you twenty thousand eight hundred and Five dollars and thirty three cents. That would be the estimated tax liability for mike for the year and then the final step step. Five would be to divide that total amount by four, because remember the estimated payments are sent into the irs on a quarterly basis. So four times a year and if we divide twenty thousand eight hundred five dollars and thirty three cents by four that gives us five thousand two hundred one dollar and thirty three cents. So that is the amount every quarter every four months that mike would send in to the irs and the way you would pay. You could do it in a number of different ways, but you could send the irs a check. I do not recommend that, but you would send it with the voucher, because on that 1040es there are vouchers that come with that with that form, and you would just make sure you attach the voucher again. I do not recommend that, but the irs has a lot of different ways that you can pay online. So if you go to irs.gov backslash payments, there are a lot of different ways. I mean they want their money, so they're going to make it convenient for you. So you can do that did want to note here that this is only talking about federal taxes um. This does not include state taxes so, depending on your state, you want to also make sure you understand their requirements and again, if you work with a bookkeeper or you're working with an accountant or a cpa, they could you know, help you with that as well, and Even some accounting software's will do this for you so um. If i know well they're not my sponsor, so i really don't want to give them any props, but if there are any software companies that want to work with me i'll, be sure to you know: um talk to you and then we can talk about anyway. Why am i going off topic? What i'm trying to say is that's the way you can come up with your estimated tax payments. If you have any questions, definitely leave them in the comments i'm here to help. This is very doable on your own. Trying to save you some money, if you don't want to work with an accountant or bookkeeper, and if you don't have money to work with a software, but you still want to stay on top of your income, and there are a lot of reasons that you want To make sure that you do this, because i know it may seem cool to not pay taxes, but if you're going to go look for a home if you're going to buy anything where you need a loan, you don't want to show an adjusted gross income of Twelve thousand dollars you wan na show that you're making money and that you can make payments on a loan or whatever um. So that's just one reason i mean the other reason. Is you don't want to get caught up for tax evasion? It'S not that serious and um. I don't want you to go to jail so um yeah. This is it i'm trying to remember. Is there anything else that i wanted to mention here but um? Let me see, i think, that's it um, so yeah. That'S estimated tax payments in a nutshell, for my hair professionals um, and i will see you in the next episode.