CCP Booth Rental & Salon Finance 2 — Questions and Answers
Question 1: A booth renter discovers the salon owner has been deducting federal income tax from their weekly booth fee payment. What should the renter do?
- Accept it as standard practice for independent contractors
- Inform the owner that independent contractors handle their own tax withholding (Correct answer)
- Request a W-2 form at year-end instead of a 1099
- Ask the IRS to reallocate the withholding to self-employment tax
Correct answer: Inform the owner that independent contractors handle their own tax withholding
Independent contractors (booth renters) are responsible for their own tax payments; salon owners should NOT withhold income tax from booth fees.
Question 2: Which financial statement shows a booth renter's assets, liabilities, and equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Profit and loss statement
Correct answer: Balance sheet
A balance sheet provides a snapshot of assets, liabilities, and owner's equity at a single date.
Question 3: A cosmetologist renting a booth wants to deduct the cost of professional magazines and trade journals. Under what tax category do these expenses fall?
- Entertainment and meals
- Education and professional development (Correct answer)
- Office supplies
- Depreciation
Correct answer: Education and professional development
Trade publications directly related to maintaining professional knowledge qualify as education and professional development deductions.
Question 4: What is the primary purpose of maintaining a separate business bank account as a booth renter?
- To qualify for a lower tax rate on business income
- To clearly separate personal and business finances for accurate record-keeping (Correct answer)
- To avoid paying self-employment tax on personal deposits
- To satisfy the salon owner's lease requirements
Correct answer: To clearly separate personal and business finances for accurate record-keeping
A dedicated business account simplifies bookkeeping, makes tax preparation easier, and protects personal finances from business liabilities.
Question 5: A booth renter's gross revenue for the month is $4,800, and total expenses are $1,950. What is the net profit?
- $2,650
- $2,850 (Correct answer)
- $3,150
- $6,750
Correct answer: $2,850
$4,800 minus $1,950 equals $2,850 net profit.
Question 6: Under a booth rental agreement, who is legally responsible for obtaining and maintaining malpractice/professional liability insurance?
- The salon owner, because they own the premises
- The booth renter, as an independent business operator (Correct answer)
- The state cosmetology board on behalf of all licensees
- Both parties must share a single joint policy
Correct answer: The booth renter, as an independent business operator
As an independent contractor, the booth renter is personally responsible for their own professional liability coverage.
Question 7: A booth renter pays $650/month rent and earns $5,200/month. What percentage of revenue goes to booth rent?
- 8%
- 10.5%
- 12.5% (Correct answer)
- 15%
Correct answer: 12.5%
$650 ÷ $5,200 = 0.125, or 12.5% of revenue allocated to booth rent.
CCP Booth Rental & Salon Finance 2
A booth renter discovers the salon owner has been deducting federal income tax from their weekly booth fee payment.
What should the renter do?