DAYSPA is the magazine of spa management. Spa owners and spa managers turn to DAYSPA for spa management trends, spa management tips and more.
Issue link: https://dayspamagazine.epubxp.com/i/109233
PROFIT CENTER EMPLOYEES VS. ICS If there���s one gray area that causes spa owners annual confusion and consternation, it���s the question of whether to classify individuals working for them as employees or independent contractors. If you have employees, you need to pay employment taxes on each 90 DAYSPA | MARCH 2013 ���If all your costs make up less than 50% of your margin, you should really evaluate the value you���re offering clients.��� ���A good target to shoot for is a 30% gross pro���t margin. In any case, spa owners need to understand how much pro���tability they have, and use that in purchase decisions.��� THINK BEFORE FILING Here���s a rundown of some other key aspects of your business to take into consideration when filing your 2012 taxes: of them. But for independent contractors, you simply send them an IRS 1099 form in January, and they are responsible for their own income taxes. So, which do you have? Before answering, make sure you understand the IRS��� de���nition of independent contractor. The IRS de���nes an independent contractor as someone who controls how a job is to be done, and what speci���c tasks are carried out. (This would not apply to a therapist who uses your booking system and takes protocol orders from you.) Michele O���Donnell, HR Services Manager for MMC, Inc., a Los Angeles-based human resources consulting ���rm, cautions spa owners against carelessness when it comes to these de���nitions. ���Owners should ensure that anyone classi���ed as an independent contractor actually meets that criteria, at both the federal and state levels,��� she says. ���The IRS has a very speci���c set of guidelines on the topic and many states have their own, too. If an employee is incorrectly classi���ed as an independent contractor, the employer may become liable for all the taxes related to that person���this might include both the employer and employee portions of payroll taxes.��� She adds that employers can also expect severe penalties for incorrectly classifying a worker. Another hot button is the issue of tips. If the individuals working for you are employees, all tips must be accurately recorded. Zwang emphasizes, ���You���re responsible for recording any income your employees receive��� not just the tips that appear on credit card receipts.��� No matter how much your employees balk at your diligence in reporting tips, the avoided penalties to your business will outweigh the trouble. O���Donnell agrees: ���Owners are required to report employee tips and employees are required to pay taxes on them,��� she says. Also, remember that tips are indeed subject to not only income tax, but social security and Medicare taxes as well (see IRS publications 1244 and 531). ��ISTOCKPHOTO.COM distinction will affect the ���pass through��� on your personal taxes. For example, the owner of a sole proprietorship will pay taxes on their individual tax return, but a corporation is responsible for separate taxes, and all of its paid employees also must pay taxes on their individual returns. ���We���re set up as an S-corporation, which requires a separate tax return and some additional record keeping,��� says Mann. ���But it allows me to classify some earnings as dividends, which are taxed at a lower rate than standard payroll tax.��� Zwang also recommends using tax-���ling time to gain a handle on your pro���t margin. Look at your costs related to pro���ts. ���If all your costs���supplies, products, credit card charges and so forth���make up less than 50% of your margin, you should really evaluate the value you���re offering clients,��� he says.