What do you wish you knew about paying taxes earlier in your career? What advice would you share with a new trainer?
Well, I’m a former CPA and tax accountant and have been for most of my fitness career, so I haven’t had to learn any fitness tax lessons the hard way, but here are some of the things that I’ve seen cause others trouble.
1) Know the difference between being an employee and an independent contractor, and how that affects your taxes.
a) It’s a “facts and circumstances” test, so make sure that the facts of your teaching arrangement matches the way you are classified by the agency that pays you.
b) An employee will receive a W-2 for their income. The employer will have taken out FICA, medicare, and income tax, and will have also paid FICA and medicare of the same amount. An independent contractor may or may not be paid by the agency where they teach; in some situations they pay rent and collect revenue directly. But in the case where a contractor is paid by the agency where they teach, they will not have had any employment taxes (FICA, medicare) or income taxes (federal, state) taken out of their payment.
c) The same types of expenses are deductible, but the way they reduce a person’s taxes is very different. An employee’s business expenses are miscellaneous itemized deductions that go on Schedule A, and only the amount that exceeds 2% of their adjusted gross income is deductible. This means, if you don’t itemize, or if you have an adjusted gross income that’s big enough that your business expenses are less than 2% of your adjusted gross income, even though the expenses are technically, your tax bill won’t go down because of them. A contractor who gets paid by the place where they teach will get a 1099 if their income is greater than $600. Even if they don’t get a 1099 or if the income is less than $600, the income is still taxable. The good news is, income and expenses go on schedule C, so expenses subtract directly from income instead of having to be itemized and above a certain amount.
2) Keep good records, especially if you’re an independent contractor! Even if it’s just a shoebox that you toss your receipts into, that’s better than coming to the end of the year and having to guess!
3) Free advice is worth what you pay for it (smile). Everyone’s tax picture is different, because everyone’s facts are different. Adjusted gross income, income from other sources, whether you itemize or not, whether you’re an employee or a contractor, whether you’re single or married, all of these things can affect your tax bill. So don’t accept advice on the internet that says, “My tax guy said I could….” At the end of the day, YOU have to sign your tax return, and when you sign it, that means you understand it.
And then there’s this. It’s more along the lines of finance than tax, but taxes figure into it.
It’s useful for trainers to determine their net income from different types of classes. Consider:
Hourly rate of pay or revenue per person
Cost of gas to commute
Music, based on the cost and how often you have to change it
Montly fees, if teaching a franchised format.
First of all, it can be eye-opening to see how different our net income can be based on what we teach, where we teach it, and how much we have to pay to upkeep each format.
There are all sorts of non-monetary considerations that make teaching classes “worth it” for trainers and group-ex instructors. Loving what we do, teaching a format we particularly enjoy, bonding with a customer base, convenience, needing to accumulate a certain number of hours in order for accreditation, commuting time, etc. Not every consideration has a dollar value attached. But it can help for setting goals and making decisions.
So much good information here– Only one thing I’d like to add– in my experience, paying the money to have a tax preparer do it for me (and I mean an inexpensive but trustworthy one! Love my NYC person!) has been an immense help. There are so many details and twists and turns, that I know I get the most money back–and safely, crossing Ts and dotting Is, using her services. W-2s, 1099s, AND cash make for a complicated return, and I would hate to miss something!
Another thing that has really helped me is to bring zip-lock bags with me to fitness conventions – one for each day. The freezer bags have a little white banner on them so you can write on them and I write the date with a Sharpie or other permanent marker.
At the end of each day, I get out all of my receipts for that day for stuff I’ve bought, whether by cash or by credit card. Then, if it’s not clear, I circle the expense or expenses that are business related and write what they are. The reason this is important is that sometimes the product that you bought isn’t going to match up with what’s going to show up on your VISA statement; your Bender Balls were probably sold to you by Savvier Fitness, and your sand bells were purchased from Hyperwear. So if you lose your receipts and just go through your VISA statements at the end of the year, you might not know what the heck you bought! Also, I sometimes buy a mix of personal and business items at the trade show exhibitors, so I circle the business items and don’t circle the gifts / souvenirs / personal supplies.
After I’ve gone through all of my receipts, I summarize on a post-it note what I bought.
Equipment – $125
Shoes – $60
Food – $60 (important to keep separate from other stuff)
The post-it goes on the top of all of the receipts and the receipts go into the zip-lock. Done!