Here's the 9 most important things you need to do when you're a fitness coach, trainer or Venmo business.
If you're an online coach helping powerlifters, bodybuilders, or fitness in general, we're the accountant you should choose for your taxes, bookkeeping and guidance.
If you keep reading here, we're going to help you understand how you should structure your business, lower your taxes, and prevent audits or problems down the road.
My name is Shamal, and I'm the owner of Asnani CPA Tax and Accounting, along with my partner Rachel.
Most Online coaches are asking the same questions:
What are the best tax deductions in my online coaching business?
What will help me reduce my taxes the most?
How much tax will I owe at the end of the year?
What are the different types of taxes I have to pay in?
What accounting and payroll do I need for my fitness coaching business?
We help some of the biggest names in powerlifting, CrossFit, and online fitness coaching across the United States.
Some of our favorite clients include
My name is Shamal, and my partner Rachel and I own Asnani tax and accounting out of Hayward California.
In this article, we’re going to give you some of the basics that every online fitness coach, personal trainer, and single owner business should focus on to make sure that they do a number of things such as
The most important thing you can do for your business is to not commingle funds and make sure that you use a business bank account.
This simple behavior is the foundation of good accounting and will help you stay out of trouble with the IRS, and also be able to manage your business well.
The first step when you begin your online coaching business, whether you’re collecting money from Venmo, you’ve been accepting personal cash or checks, or if you’re looking for a simple way to invoice customers, is to set up a business bank account and use an online accounting system such as XERO, or QuickBooks online.
The very first thing you need to do in order to open a business bank account for your fitness coaching business, is register your business with the state. If you’re here in California, you want to go here
Once you do that, you’ll be given a number and you can bring that to any bank and open up a business checking account.
It's very important that you have all of your income and sales run into this business bank account.
After the income has flowed into your business bank account, you can just transfer it to your personal bank account if it's a schedule C. If you've become an S-Corp, you can draw money out easily, and it will be an "owners distribution", but S-Corps need to also have a reasonable salary paid through a payroll system (more on that later).
Remember that you'll owe taxes on the income you're drawing out of the business bank account.
Once you’ve opened up your business bank account, all of your income should be transferred into this bank account and then you should only pay for qualified business expenses with that account.
Now that you understand how you'll pay yourself, let's talk about what you can pay for with your business bank account. In other words, let's talk about what's actually a business deduction.
Basics of the Business Bank Account:
Gross minus expenses, = your net business income.
You owe 3 types of taxes, so save appropriately (more on this in a minute)
What are qualified business deductions that I can pay for out of this business account?
In short, if it's a necessary and ordinary thing for conducting business, chances are it's deductible.
Be careful and don't use your business checking account to pay for personal expenses, and we usually recommend connecting with us before paying for gas, meals and entertainment, and anything that seems too good to be true.
The best place to start learning about this, is the actual IRS website that describes what's deductible.
To be deductible, a business expense must be both ordinary and necessary.
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
It is important to separate business expenses from the following expenses:
The expenses used to figure the cost of goods sold,
Capital Expenses, and
We’re going to talk about what is a qualified business deduction in your coaching business, but first, let’s talk about some items that need to be treated differently.
Personal expenses are not business expenses, it seems silly that I even have to mention that.
Don’t use your business checking card to purchase stuff that’s not necessary in ordinary for business.
If you are buying and selling lots of inventory, we will need to talk about your cost of goods sold, and you should simply reach out for a free consultation to understand how you should handle March inventory.
The first thing our items that would last longer than a year which will need to be amortized over a period of years rather than written off right away.
A simple explanation is that with every purchase, a small business needs to decide whether it is going to
In other words, some purchases you will get to deduct the whole thing right away, while some things you have to right off a portion of it every year (amortized)
Think about it, if a business wanted to, they could purchase massive amounts of equipment and totally avoid taxes, which our government does not want to have happen.
Therefore, if something is considered a fixed asset, which means it has a long-term lifespan and is used in the operation of the business, such as property or equipment.
There's a great write up here that explains a great deal of what we're about to learn.
NOTE: Investments such as vacant land or buildings would not be considered fixed assets because they are not currently used in conducting business
Take the cost of that item, and divide it by the lifespan of it to find your depreciation write off for each year.
Sorry we’re droning on a little bit here, but this is important to understand for your fitness coaching business because many of you are going to have some purchases that will be capitalized rather than deducted right away.
An expense on the other hand, is a business resource that will expire and be consumed by the business within a year or the normal operating cycle of the business, whatever is longer.
If your item has around a five year lifespan, you might be able to take 20% of its cost each year.
Examples of items that would be capitalized vs. expensed & immediately deducted:
I’m not going to talk anymore about thresholds of defining things as an IRS fixed asset and everything that goes into capitalization, here’s what I will tell you.
Basically, if something is over $2500, we should probably consider it a fixed asset that should be capitalized rather than expensed
Tax deductions or expenses for your powerlifting coaching business
All right, so the big stuff doesn’t get to be written off right away, now let’s talk about what does get to be written off right away.
In that business account, you can pay for things that are necessary and ordinary in the operation of your business
RECAP of what we've covered so far:
To summarize everything, you should open a business bank account after you’ve established your company with the state, you should have all your income flow into that business bank account. Transfer money out of that account into your personal checking account when you need it, and pay for qualified business expenses with your business bank account.
So here’s the deal, we provide accounting, tax, tax planning, and other services for people like you.
What we do for online coaches is hook the business checking account up to an online bookkeeping software such as QuickBooks online, XERO, fresh books, or a host of other cloud-based accounting Systems for Small Business.
Our personal favorite is QuickBooks online, and we highly recommend that you use it as well.
Basically, you will need to create a chart of accounts, and reconcile all of the income and deductions or expenses within the business.
We’re not gonna talk about how to do that in this article, but we want you to know that in order to protect your business from the IRS, and to understand simple accounting, bookkeeping is a critical part of the entire process.
Let’s recap quick.
As we dive into what taxes you’ll need to pay, it’s important to understand that there are different businesses entity types that are taxed quite differently. We have other articles that talk about the tax difference between an LLC and an S Corp., so for this article, we will just establish how you would be taxed as a sole proprietor or which is often called an LLC.
Types of business entities you can choose
A limited liability company, or an LLC, refers to the legal side of things that protects you from liability in your business. It’s important to know that an LLC can be taxed as a sole proprietor or, or an S corporation.
We talk about this in our free tax analysis phone calls, and we unboxed the subject in other places throughout the site, but here’s the basic rule.
When you become an S Corp., you have a more expensive tax return, payroll service expenditures, legal paperwork, and just a little bit more complex situation that comes with added costs. When you’re deciding if you should start out as an S corporation, or file a 2553 to convert your LLC to an S Corp., you’ll want to do the math to figure out if your tax savings will be greater than the cost of compliance.
In short, an S Corp. will save you in taxes, but your cost of compliance will increase.
We generally don’t recommend becoming an S Corp. until you’ve hit net profits that are higher than about 30,000 or 40,000.
Every business starts out as a sole proprietorship.
Unless you file a 2553 to convert to an S Corp., or if you decide to become an S Corp. right away or some other business entity type, you are going to be taxed as a sole proprietor ship, also known as schedule C income.
How are you taxed as a sole proprietor versus a W-2?
You will be taxed differently as a small business owner then when you worked for a corporation or another company.
You will have to pay Social Security tax, Medicare tax, federal income tax, and state income tax.
I wanna keep this simple for you, so let me attempt to explain this clearly.
Here are the types of taxes you'll pay.
Social Security tax is the funds that are used by the government to give out Social Security benefits and Social Security disability payments.
Every year, the Social Security limit is adjusted by Congress, and for 2021, it will be $142,800.
That means all of your income on your schedule C, or as your W-2 payroll in an S Corp., up to $142,800, is subject to Social Security taxes of 12.4%.
The Social Security tax rate for self-employed people is 12.4%.
For employees, or W-2 earners at a corporation, the business pays half of the Social Security tax, which is why you will see that the current tax rate is 6.2% on many different websites.
Right off the bat, you will have to pay your 12.4% Social Security tax and in this example, that comes to $12,400.
Besides this Social Security tax, you also will have to pay Medicare taxes in order to fund our nations generous Medicare insurance.
If you make over $200,000, there is an additional .9% Medicare tax you will pay.
Quick summary: you will owe 12.4% Social Security tax up to the Social Security limit. Every year, Congress adjusts the Social Security limit, and in 2021, it is at $142,800. On top of that, you will also pay 2.9% in Medicare tax on all of your income. If you hit $200,000 in income, you will owe another .9% on wages above that.
You will need to pay in quarterly estimates to the IRS for your federal income tax and your Social Security and Medicare taxes.
The combination of Social Security and Medicare tax are commonly called self-employment taxes by accountants and the IRS. In short, you will owe 15.3% tax on everything you make up to the Social Security limits when you are taxed as a sole proprietorship and have not become an S corporation or a C corporation. An S corporation can provide tax benefits to help save on self-employment taxes, but a C Corp. is usually a bad decision because it creates additional taxes.
After you've paid your social security and medicare taxes, you'll then pay state and federal income taxes.
This is a progressive tax rate, which means that the more you make, the higher the percentage of tax you will pay.
If you are a sole proprietorship, and you have not filed to become an S corporation, you will file a schedule C tax return and a personal tax return.
If you filed a 2553 to convert to an S Corp. or to perform what’s known as an S election, you will file an 1120 S and receive a schedule K from your corporation. You will then have a personal tax return as well.
Sole proprietorships and S corporations, as well as partnerships, are what’s known as pass-through entities.
During the tax cuts and jobs act, the Republican Congress wanted to help small businesses and they provided what’s called a qualified income deduction, which allows you to receive an additional bump on your personal tax returns.
There are a number of limitations which we can hit on in another article, but just know that there is an additional deduction that will happen to help you out and lower your income taxes if you have a qualified type and business.
Those are the basics of accounting and bookkeeping, tax and accounting for fitness coaches and Venmo businesses.