hairstylist. When does it end? When will you actually start to put yourself first so you can make more money, keep more money, and do it without feeling guilty? I'll tell you when. Right, mother, effing now. Welcome to the Make That Money Podcast with Nina Tulio, where we talk all things pricing, all things profit, and how to build your business with confidence. Hey, my friends. Welcome back to the Make That Money Podcast. I am your host, Nina Tulio. And guess what? I actually have a guest today. This is like, a rarity because typically I just kind of do this podcast on my own. But when I do bring guests, they always come with a punch because I have them for a reason. My guest today has actually been on my podcast before and is really talking about the things that I'm not sure talking about. And so I always want to make sure that I'm deferring to a professional when we're talking about tax and tips and all those fun things. So today I have with me my friend, Michelle Cook, and Michelle is a CPA and along with her team, they are helping beauty industry professionals get their tax shit all the way together. So welcome my friend. And I'm so glad to have you back. Yeah, thank you so much. I'm so excited to be here. I know the last time you were here, we were talking about, oh my god, it literally just lucked my mind what we were talking about. But I know it was so important because it was one of the highest downloaded episodes. Why am I literally drawing a blank? It's probably uscores. Was it escorps? Oh, well, I know what it was. Thank you. It was paying yourself. How to pay yourself. How am I going to do my own podcast? And I don't know. You know what we talked about? It was about paying yourself and escorp was a part of that and people really were into that because everybody wants to know how not only how much money I can make, but actually how much do I get to pay myself so I can reward myself for working so hard. So now we have a little bit of a different topic. And we're going to be talking about the one big, beautiful act. And I know you've been talking a lot about this and even, you know, earlier in 2025, summer 2025, I have been just processing a lot of information and I always want to make sure that I'm giving the right information. That's why you're here. And so if we can just kind of start foundationally and just tell everybody what this is and what it actually means for beauty industry professionals. Absolutely. So this last July, they passed a new tax law and it has a ton of stuff in it. But the really big impact is the way that tips are being handled on your taxes. And we'll get into all the nitty-gritty as we go on. But some things that were maybe unfair in the past are being made right now. So that's really positive for salon owners. But I think maybe the biggest misconception that I can dispel right away is no matter who you are in the beauty industry. Whether you're a salon owner or an independent, whether you have employees or no employees, whether you are just a commission based employee somewhere with no ownership whatsoever, everybody is going to be impacted in a positive way. Well, that's good to know because that was one of the questions that kept coming up. You know, the independent artists were like, well, what about us? You know, commission says we're like, well, what does that mean for us too? So I'm glad that you're really saying that right off the bat. So people understand and people who are tuning in, you know, they know that this is going to impact them in some way, shape or form. So in terms of the sub overview, we're talking about taxes and tips, tips on taxes. There's $25,000 rolling around. Can you just kind of like lay it all out in a really simple way? Because I know for myself when I read a lot of this stuff, I get overwhelmed. And I'm like, how would I break this down? If I can't even break it down in my own mind, how am I going to break it down for everyone else? So I just really want everyone to understand what this means when they're owners, when they're individual, and then obviously being a commission stylist as well. Yeah, of course. So there were two main things that have impacted tips. One is a deduction and one is a credit. So what you're reading up right now is the deduction piece. So let's dive into that deduction, which as you said, there is an up to a $25,000 deduction that you can have for the tips that you've received. This applies to anyone who is a W2 employee. So that would include just a regular W2 employee. That would include an S-corp owner who has themselves on a W2. But it also applies to our Schedule C-fileers, people who are like, you know, booth renders or sweet renders and they haven't maybe made the S-corporation election yet, but they've got a silver pridership or an LLC and they're operating in that way. So all of those people are able to deduct up to $25,000 in their tips for 2025 and that lasts until 2020. Okay, that was going to be my next question. Like, how long is this happening? And, you know, how long can they, so you're saying it's they can deduct up to 25,000 and then anything over the 25k is business as usual. Exactly. So, and I should also say that it's $25,000 per tax return. So if you're married and maybe your spouse is also in the industry, sure, it broke down at $25,000 cap, which we were kind of hoping back in July that they would make it per person. But as they've come out with additional guidance, since then, the clarified is just per tax return. And yeah, so anything above $25,000, as you said, business is usual, but up to that $25,000. Yeah, no federal taxes on that. Yes. And so, okay, and I think part of the frustration, and I remember this when I was a salon owner and I hear this often with my coaching clients, part of the frustration is all of the tips are coming into the business as a commission salon owner. And that is being reported has to be reported as income, even though then those tips are being paid out to the hairstylist. So a lot of the frustration was the owners were having to pay all of that tax on the tips that were coming in and the tips were not necessarily kept income for that salon owner. Is that in my saying that right? Yes, but what you're talking about that particular issue is related to the fine, a tip credit, which we can totally cover and detail. I just don't want to confuse them either. But you know, we pretty much have kind of covered the main things for the deduction, but I did just want to point out a few things. If you are filing on schedule C, so those are my sole proprietor LLC people, you can only deduct tips up to your profit. So let's say maybe you did have $25,000 in tips, but you had a $20,000 profit in the business, you're going to be limited to deduct $20,000. Got it. So that's one thing. There is also a phase out if you are a high income earners. So if you're single, it starts to phase out the deduction. If you have over $150,000 in revenue, or if you file jointly with a spouse, if you have over $300,000 in revenue, but those income numbers are pretty high, and I'd say I think for the vast majority of the industry, they're probably not even going to hit those phase out buckets. Got it. Perfect. And I know that you, one of the things that you mentioned that was important that this is federal income tax only. Yes. Yes. Good clarification. So when you file schedule C, you have to pay state taxes and self employment tax. Those taxes will remain the same. This is just federal. Yeah. Got it. So the first component that we were talking about is the deduction. That's the 25 or up to $25,000 in a deduction. And then I went on a tangent and I started talking about the commission salon owner and what they were, their frustration is in what mine was too was paying tax on tip income that wasn't necessarily income kept for the business. So do you want to get into that side of it, which is now the tip credit, correct? Yes. Yes. You're right on. Perfect. Okay. So, and this is where I was just like, here's salon owner. There's just so many different kinds of taxes that you've had to see available for. So this particular tax, the FICA tax is actually payroll tax. So what was continues to happen and has happened is when your employees receive tips, then the salon owner has to pay payroll taxes on those tips, which is hard on salon owners because when you're paying credit, her processing fees when the tips are coming through, plus now you have this 8% payroll tax that you're paying on top of that. So it gets that expensive for something that you don't have control over how much the clients are paying your employees. And some months maybe especially around holidays tips get a little bit more generous, which means your tax bill goes up. So what's been interesting is that the restaurant industry has had the FICA tip credit for decades. Yes. Oh, it's crazy. And so, restaurant owners have been able to basically get back any FICA tax.
that they paid on those tips for, like I said, decades. And a lot of people have been lobbying to get this past where we could get some fairness across the board and say, hey, if we're in a tipped industry, owners should have to pay the payroll taxes on this. So basically Congress agreed and they wrote that into this law. So now you're still going to, as a salon owner, to pay those payroll taxes when the payroll tax skip filed. But then when you go to file your income tax return, you can get a tax credit for the amount that you've paid. And I just want to be clear, it's only the payroll taxes that were paid on the tips. So you're still going to payroll taxes on wages, like you always would. But I'll tell you for, especially for some of these larger salons, you know, this is a five-figure number that salon owners are going to be able to get back. So it's a pretty big deal. - Wow. Now, it is a really big deal. And I know I remember having these conversations with my CPA, I mean, we're going back 2014, 2015. And I'm like, why am I having to pay all of these payroll taxes on all of these tips when this, it's income for the business, but it isn't kept income for the business, right? And so it was, I mean, I was already having these conversations. And I know she kind of works some things out. I'm not going to, I don't know. I'm not even going to say anything about it because who knows what was going on? Obviously, all was good. But I don't know how we have been overlooked for so long in the restaurant industry, which is also a service-based industry, has been getting this taken care of for them. And so I was so happy to see that this was going to be passed and that this was going to give relief for the owners. Now, is there something special on this side of it for the S-Corp, for the salon owner that is filing as an S-Corp? Yes, yes. Well, actually, before I answer that question for a give me, I just want to clarify something because we were talking about the deduction. And I mentioned that that ends in 2028. This credit, there's no set expiration. This is a permanent change for salon owners. Amazing. I know everyone's like, I'm like, oh my gosh, the deduction. It's $25,000. And I'm like, this one, I think, will have a bigger impact on the industry overall long term because it's an, you know, until they pass another law to remove it, it is there. So that's really, really impactful. But yes, okay, so I just want to be clear, the FICA tip credit specifically is for salon owners. So if you are an employee, you're not going to get an immediate benefit on your tax return for this. Although I think we could talk a little bit later about how employees are going to benefit from this. But this is for salon owners. So then what happens is you can either file schedule C or you can file as an escort. Well, if you file schedule C, you're not an employee. So your tips are included in any of this. If you have employees, though, those employees tips are included. Okay. But let's hop over to S corporation. When you are an S corporation, you have to put your self-empower role. So as long as you are, you know, actively running your tips through payroll and it's broken out separately on there, not just like all meshed together under wages, you can get a credit for any FICA taxes that are paid on your tips and you can get the tip deduction of up to $25,000. Okay. So it's like you can, you can hit both sides of this. Which I was expecting them to say, usually they do carbouts for owners and they say like, well, you don't actually qualify for this if you own a certain amount of the business or things like that. And they actually had some language and the laws like that in the beginning. But the final law that got passed doesn't have any of that. So owners are good to be able to both get the deduction and the credit on their wages. So I did the math and basically if you have the maximum $25,000 and you're able to take both of the credit and the deduction, it's about $7,200. And yeah, that's huge. And you've done nothing different with your life, right? Like it's just like from this year to last year and all the change was the tax laws. Wow, that is really, really huge. So I do want to recap too and just to make sure that we're clear. So the deduction of the $25,000 is going to end in 2028. Correct. And then the credit, the FICA tax credit, it's so far as we know is going to continue on. Exactly, yeah. It would take them passing another law or them to remove it because there's no set expiration. Okay, wow. I mean, this is a game changer seriously. I mean, and especially for the next couple of years and being able to get both. I mean, we're talking a lot, a lot of money here. Is there anything that the salon owner, the independent or even at this point, a commission hair stylist has to do or say to their CPA or the person doing their taxes? Because what happens if someone isn't in the know and they don't get the credit or the deduction that they deserve? Oh, absolutely. So here's what I'll say for S Corp owners. 'Cause I know that we did this for our clients, but that's because we specialize in beauty. And so it was top of minus and as this tax law passed versus if you work with a CPA and they have hundreds of clients and you're one of three salons that they do. Sure. These aspects of the law might not have been the first things that popped into their view. So one is that most S Corp owners prior to this lobbying pass just kind of paid themselves a salary. And that made it easy because it's like, I guess that paycheck every single two weeks or whatever your cadence is and you didn't have to go and do any calculations or anything about it. Well, if you continued to do that in 2025, then that means that tips aren't broken out separately, right? Because you didn't run them and through payroll. So here we are in 2026. Paral tax turns a bit of file, W2s are being issued. What's a salon owner to do if they didn't do anything in 2025 to give the documentation? 'Cause it's gotta show up on the W2 if you wanna get the benefits. The first thing that they could do is go back to their payroll processor and ask for some amendments. But what I can tell you 'cause I learned this as we were doing it for our clients is that if you use one of the main payroll processors, Gusto, Square, QuickBooks, these payroll processors are really more so software companies and there aren't a lot of people managing these systems. And that's why they're so inexpensive to have a service. But what that means is that if anything happens that's outside of the norm for the systems, they're like, "Uh, we don't know what to do." We can't help you. Yeah. So what we ended up having to do for our clients is we had to go and issue amendments to prior our payroll tax returns because there are payroll processors just didn't have the systems to be able to do it for them. Same thing with W2s, we're having to issue some corrective W2s on the back end as well to get the tips broken out. So you might talk with your CPA, see if that's a possibility of something they can help you with. If you don't have this in place though, I would really, really recommend just plan on filing an extension because it's probably unlikely if you are working with an average tax accountant that they're gonna have time to go in and do all of this amendment fixing stuff in the middle of tax season 'cause this is like, by far the busiest time of the year. So your bet is to plan on filing an extension and then work with your CPA, maybe plan for like May work to get those payroll tax returns amended so that you can get the deductions and credits and then you can make sure you file. And for the record, extension, it's kind of a pretty normal part of being a business owner. It's not a big deal. I file an extension from my taxes every year. I know sometimes you have some concerns about it, but it's pretty common place, not a big deal to be filing an extension with an S-Corp. You have until September 15th, once you've filed the extension for your personal taxes, you have until October 15th. So it's kind of a nice way to spot the extension, get the pressure taken off and give yourself in your account some time to work through getting the documentation and place and getting it right. 'Cause like we talked about before, it's thousands of dollars. So it's a lot of money on the line. It's worth it to take the time together, right? - Oh, absolutely. And I wanna talk about something else when you and I have talked about this, I think through the DMs or maybe through text, but salon owners or, okay, salon owners that are allowing their stylists to run tips through Venmo, Zell, and any kind of extra payment source. I think that there was a thought process that those taxes didn't matter to the business or they weren't going to have to be taxed. Can we clear that up? Like just say a salon owner, they're like, hey, I'm just gonna have the stylists take a tip on Venmo or they can click the QR code. What are the liars?
legalities and the laws around taking tips that way. Sure. So if you want your employees to have like their own QR code, they give for accepting tips. What that does for you as a salon owner is that means that you don't have to pay the credit card processing fees for when those tips are paid. But that doesn't exempt you from getting those tips into payroll and getting the payroll taxes appropriately paid on them and making sure that those tips get included in the W2 at the end of the year. So a salon owner's obligation is to ask their stylist to provide them with any kind of cash tip that they receive, whether that's physical cash, Venmo, Zell, you know, whatever kind of tip that they received outside of the salon's processor. And the law is is that employees have until the 10th of the following month to report it. So let's say the end of the month closes. If I were a salon owner, I'd probably have some kind of like a maided email or something that goes out to my employees. Probably a form like a Google form or something that they could fill out and put their name and total tips that they received in the month that they're reporting it for. That way kind of just pops into a spreadsheet for me that would have all of my employees and for there. And then I would, you know, by the 10th of the month, whatever the next payroll is after the 10th of the month is I would be putting all of those cash tips through payroll so that one, you're paying the payroll taxes appropriately and to the wages are getting put and for the employees. Got it. Okay. I just wanted to clarify that too because I think it's become so much more popular with, you know, owners wanting to have people take, you know, Venmo and Zell. And I just want to make sure that everything is on the up and up. And even though it's great, if you want to be able to do that because you're right, you're not paying the processing fee on that credit card transaction. But it doesn't mean that you don't have to take care of the tax on that money that's still coming into the business. So if you were ever to be audited, and you couldn't prove that you had a system in place where there was some reporting from your employees that was expected, the IRS just gets to make an estimate for what they think the amount would be. And that could be more than what actually happened. So it is, in fact, it's usually more, I'll just say that. So it's in your best interest to have a system in place and have that tracking. And if you know, if you're still on to big enough to have like a front desk person, that's a great thing to have them, you know, send out the email at the beginning of a month and then make sure that everyone has reported and have them follow up with everyone on it. Sure. It's a pretty simple thing. But if you don't have the process in place and you can't prove, yeah, you're stuck. We don't, we definitely don't want the IRS to make decisions because they're always going to make the decision that's going to benefit them, you know, and you don't want to be in that type of situation for sure. So I know that you have a guide that people are going to be able to download that breaks this out. So clearly and so beautifully, you even do a ton of breakdowns in terms of like actual dollars and tax savings. So if you're interested in grabbing that, you can get it in the show notes. I will have a link and it will send you right to Michelle's website. So you can grab a copy of it. Is there anything that I missed that we didn't talk about? Anything that we need to make more clear as we kind of, you know, wind down here on our little chat. You know, there, there is one thing that I think is really important because it was really only clarified in the last couple months by the IRS. So what usually happens is Congress passes the laws and then and then the IRS comes out with interpretations of those laws and gives us a little bit more clarification on how they're understanding that and what that's going to mean in the specific kind of like day-to-day execution of those laws. So one thing that surprised and disappointed, but is good for us to know is that the IRS has taken the position that for a tip to be deductible for the deduction, it must be paid through some form that gets reported to the IRS. So what that looks like is a W2. So like when your employer issues you W2, they send a copy to you and they send a copy to the IRS, same with 1099s. When those are issued, one goes to the IRS, one goes to the individual. So if you are self-employed, then that means you're going to get a 1099K from your merchant processor. Well, here's the thing. 1099Ks are only issued if you have at least 200 transactions in a year and at least $20,000 has been charged through that processor. So for someone who's like brand new in business or maybe if you started like more towards the end of the year, it's possible you might not meet the thresholds for that 1099K, which means you wouldn't be able to deduct those tips without that 1099K. If people pay you tips and cash, sell, then mo, all of those things, when you're self-employed, you don't have a W2 to get them on. So what I'm talking about right now is really applying to those Schedule C filers. You're not going to be able to deduct them. So I just really encourage everyone listening. If you're accepting tips in a lot of different ways, push it through your your merchant processor. That way you will be able to get the deduction because whatever money you're trying to save on processing fees isn't going to touch how much the tax savings is going to be worth to you. So just get the tips through your processor. The other thing I wanted to mention is a lot of times, especially like independent stylists have their merchant processor account, your point of sale system, whatever that is. And then they also have a business Venmo account. And that's totally legit to accept through a business Venmo account. And you've got your area where you can actually put how much you want to pay someone in tips in the business Venmo. So all of that is above board and fine. But once again, the problem comes is that Venmo doesn't have to issue you at $1099K if you don't hit the 200 transactions in $20,000 threshold. So if you're splitting stuff and you have Summon Square or Vigaro or Glosset, you know, so whoever you're using and then Summon Venmo, you just want to make sure that like both of those are reaching that minimum $20,000 and 200 transactions threshold so that you are getting that $1099K so that you are eligible to get the deduction on your self-employed. Yes, bottom line, run everything through one place. It's just so much easier to have everything. I have a couple of independents in my students make that money that we're you know asking this. I'm like, guys, keep it so simple. Just run it through your payment processor, just do it in one place and also just from a client perspective, I have three options to pay you in, like what it can confuse them a little bit. It lacks clarity. And so I think we want to be as transparent as possible, especially now as we're in 2026. People are literally craving price transparency and they're just craving transparency in general in terms of doing business with other people and just make it easy on yourself. You know, don't make it so chaotic where you're having to grab bits and pieces from every single processor that you're using. Yeah, it makes your life just so much easier to be able to just go, there's one source of truth, it's in this one log in and you know you're good to go after that. Yeah, that makes total sense. Thank you so much for adding that on. I I'm so glad that you did. And I think this information is going to be so beneficial. It's clear, it's concise and it breaks down those two buckets which we talked about. And I think this is going to be so impactful for the beauty industry. We've been waiting for a very long time and now is the time to make sure that you take advantage of these benefits. So where can people reach you? Where can they? I know we're going to put you're going to have the download on your website. Where can people find you reach out to you with questions and maybe just drop your website too so they have it. Yeah, of course. Website is Carter Cook CPAs with an
[email protected]. And if you want to reach out, my Instagram is @smallbusinessca and happy for you to slide into the DMs if you've got questions or things and if you're looking for help, we'd love to help. Yes, yes, yes, yes. Please do that. I know you have such valuable information on your Instagram as well. I know I send a lot of people there just to gather some facts and data, but I do have a lot of clients that work with you as well and you really take you and your team take care of people. My people especially because I know them and the reports I have to say that your team delivers to my clients, P&L's plus, it just makes everything bookkeeping, it makes everything so much more clear and so much easier. So thank you so much for all that you do for the beauty industry and making tax talk easier, more digestible. And I will make sure that I add that link to your website for the free guide so they can download it. And as always Michelle, thank you so much for joining me and for being a guest on the Make That Money podcast. Absolutely. Thank you so much for having me. Thank you.
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