Why Tax Day isn’t a bad day for new franchiseesApril 17, 2018
The ongoing benefits of opening and owning a Fantastic Sams salon franchise may surprise you
Tax Day is today for most Americans, but for entrepreneurs, of course, tax season is all year round. Despite their infamous reputation, taxes don’t have to be a burden; especially for Fantastic Sams salon franchise owners. Our approachable investment can help open the doors to owning your own business, and many of the expenses you encounter as the owner of a salon franchise are tax deductible for years to come.
You can deduct startup costs…
The initial investment to open a new Fantastic Sams salon franchise is estimated between $145,362 ando $317,006, including the initial franchise fee and working capital. As with most salon franchise opportunities, new owners pay a franchise fee upon signing an individual franchise agreement. With Fantastic Sams, the amount is $30,000. Your startup costs include working capital, which you’ll need as your ramp up your salong for opening. While starting a new salon business may seem daunting financially, the benefits can be long-lasting — especially when it comes to taxes.
The IRS lets franchise business owners deduct their startup costs, and the initial franchise fee must be amortized over a 15-year period. According to AndersenTax, a franchisee will usually achieve better after-tax cash flows during the initial growth period, provided he or she purchases a franchise with a relatively low franchise fee. Some initial expenses, like inventory, equipment and furniture, can count toward larger initial tax deductions to help alleviate the immediate cash flow strain following the business’ opening. Other organizational startup costs, like legal and consulting fees, must also be amortized over 15 years.
…and Fantastic Sams’ flat franchise fee…
Fantastic Sams has a flat franchise fee, which means that no matter how much money a salon makes, the owner will be able to pocket any profits above that fee. While some costs vary depending on the circumstances, a Fantastic Sams salon owner can expect to pay, for example, a weekly franchise fee of about $362 and a weekly national advertising fund fee of about $142. These costs are tax deductible.
The IRS allows franchise owners to deduct fees that are part of a series of payments as long as they meet certain requirements. The payments must be contingent on productivity, use or disposition of the franchise. They have to be payable at least annually for the entire life of the franchise agreement. The payments must also be substantially equal in amount or payable under a fixed formula.
…and even some general expenses
Did you travel this year to meet members of the corporate Fantastic Sams team? Deduct it! Did you use your own vehicle to travel from one salon to another? Deduct it! Did you spend money on office supplies? You guessed it… deduct it!
America’s Best Franchises lists numerous deductions that franchise owners can take. If you traveled for business related to Fantastic Sams, you can fully deduct the costs of transportation and lodging, and you can write off 50% of your meals. Any expenses necessary to run your franchise, such as commercial rent, salaries and supplies, are considered general business expenses and are tax deductible. You can write off much of what you pay your staff in terms of benefits. Even the miles you put on your car for business purposes are considered tax deductible.
How S Corporations benefit
Some salon owners set up their stores as S Corporations, which are companies that pass income, losses, deductions and credits through to their shareholders for federal tax purposes. This is the setup for Scott and Selina Hansen, who own six Fantastic Sams salons in Utah.
“We make every effort to follow accounting guidelines so expenses offset the income to reduce taxable income for the business,” explains Scott.
Selina, who is also a full-time accountant, says that with an S Corp, the owner’s salary must be set at a reasonable amount to eliminate self-employment taxes.
“The income flows through to the owners, but this income is only taxed for federal and state, not FICA,” she says.
Fantastic Sams salon franchise owners can explore many avenues to make sure they maximize their allowable deductions at tax time. They can hire their own accountant, but Fantastic Sams is always available to help. We offer franchisees extraordinary field support, so no owner feels alone. Find out more about our franchise opportunity, please explore our research pages. Click here to fill out a Fantastic Sams franchise application.