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Dear Michelle,
Every tax season, I find myself scrambling to gather all the documents and details my accountant needs to file my taxes. It’s a huge time suck and steals my focus away from serving my clients and growing my beauty business. I already use QuickBooks to track my income and expenses, but my accountant still requests more information from my point-of-sale (POS) system.
So, my question is: Will a POS system really help me streamline my taxes? And, if it does, what should I look for in a POS system to ensure it’s worth the investment for my beauty business?
Sincerely,
Curious Salon Owner
Dear Curious Salon Owner,
I get it — tax time can feel overwhelming. Luckily, you already have a big piece of the puzzle solved by having up-to-date bookkeeping. As you’re learning, your point-of-sale system also plays a vital role in recordkeeping and streamlining your systems for tax returns and everyday operations.
Why Is a POS System Important for Beauty Businesses?
A point-of-sale system is the hardware and software that business owners use to track all sales transactions in one place. POS systems track customer contact information, which services and products were sold, and the amount of sales tax collected, and they allow you to take payments conveniently for your services with credit cards. POS software is a game-changer for running a smooth, successful beauty business. This is the first software that any beauty business should sign up for.
How can POS software help with taxes?
Setting up your POS software correctly can have a big impact on your sales and income tax.
1. Sales tax made easy
Your POS software will automatically calculate how much sales tax to withhold on retail products that are sold. When you file your sales tax return, knowing how much retail you sold is as easy as pulling a single report from Square that shows how much you sold and how much sales tax you collected. It makes filing sales tax returns super easy.
2. Income tax help
For income taxes, your POS system will generate your 1099-K, which is a tax document that shows how much money you received from credit card sales during the year. This report is a must-have for your accountant.
Complete bookkeeping is also critical for income tax returns. Small business bookkeeping is based on transactions from your bank account. When a POS system deposits your sales into your bank account, those deposits are netted together. That means you have service sales, retail sales, sales tax collected, credit card fees, and possibly loan payments that are all combined into one deposit you see on your bank statement. Pulling detailed reports from your POS software and using those to break out the deposits is the only way to get your bookkeeping complete and accurate.
How will using POS software help me manage my inventory?
Tracking your inventory accurately can reduce your tax bill. Inventory is only tax deductible once it’s been sold. That means that if you have an inaccurate inventory system showing more inventory on hand at year-end than you have, you’re unwittingly overpaying in taxes. Thankfully, Square has a retail add-on that allows you to keep track of your inventory levels year-round.
Pro tip
Make sure to do a year-end inventory count. This allows you to compare how much product you have in your POS system versus what is on the shelves in your salon. You’ll want to do a true-up at year-end so the inventory totals are accurate for your tax return.
Managing a team? Your POS system can help.
Most beauty businesses pay their employees commissions and collect tips, making payroll complex. Your point-of-sale software becomes the source of truth for calculating commissions because it tracks how much each employee completed in service totals, retail sales, and tips. With Square Payroll, you can seamlessly integrate your Square POS system to transfer timecards and tips.
A solid POS system isn’t just helpful — it’s essential. It can turn hours of manual number-crunching into a few clicks at tax time. If you don’t have one, consider getting started now to make this tax season smoother and your daily operations more efficient.
