There is no question that the entire fitness industry has responded rapidly to the shift in working from home over the past couple of weeks. Within minutes, personal trainers and instructors were offering their programs, workouts, and coaching services online. It is no surprise that our industry, centered on serving clients, was so quick to take action and keep serving. Now that we have had a little time to breathe and reacclimate to this new "normal," it is essential to take a step back and understand how a new online business model can affect our finances, specifically, our taxes.
For fitness professionals who have historically earned their living as an employee and received a W-2 to report their income each year, the shift to working with clients online includes a change to earning business income as opposed to employment income. Much like receiving a 1099, the income you earn from working with clients directly is not subject to any income tax withholding. You are responsible for paying estimated taxes on this income to avoid a possible underpayment penalty, and a large tax bill come the following April. Therefore, you must be diligent in tracking the income you receive for our services as well as any related expenses you incur. All income, regardless of amount or method received, is considered taxable unless claimed explicitly as an exemption or deduction.
One of the key advantages of earning income online directly from clients is that you can also take business expense deductions against your income earned as a business owner. This means that costs such as insurance, audio/visual equipment, music, exercise equipment, advertising, continuing education, and more could be considered tax-deductible and help bring down the total taxable income. If you already earn income from working as an independent contractor, your income from your online services will be claimed and taxed similarly, as business income.
The key to taking advantage of all these deductions is to keep reliable records of all the transactions associated with hosting your online sessions. If you are already tracking this for your fitness business, you should include anything related to your online business as well. These deductions will help to reduce your taxable income and the taxes owed. Best to begin tracking all of this now, as it will only become more difficult as time goes on to catch up or to try to create this list from memory next winter.
To clarify, you do not need an LLC or other business entity to be in business and/or to claim business income. Once you begin selling your services, you are considered to be “in business.” Your business income would be reported within your personal tax return along with any deductions.
Another consideration is the sales tax. For some states, personal training or fitness services are considered taxable services for the purposes of sales and use tax. For example, New York considers most of these services to be taxable, while Massachusetts taxes almost no services. Sales taxes are imposed by the state and are passed on to the end customer, meaning if you are supposed to pay sales tax, you would add this to your price, and the client would pay. You would then remit sales tax payments on a monthly, quarterly, or annual basis to the state. If you are unsure about whether your services are subject to sales tax, you can call your state's Department of Revenue or Taxation or visit their website to clarify. If you are providing services that are subject to sales tax, you will work with your state to get registered and set up for payment. You can also hire an accountant to assist with the routine sales tax filings and determining how to handle this.
These unprecedented circumstances uniquely position the fitness professionals a considerable opportunity to expand their reach and impact on a global scale. Even though it may seem like a small amount of money or a temporary situation, the trends point toward virtual becoming a more permanent offering to the general public, and those who have the right infrastructure in place will be positioned to flourish. Make sure you have the right processes in place to account for the financial aspects of this new opportunity as well, even if it means outsourcing to a professional.
Note that the content of this post does not constitute individual tax advice. If you wish to implement any of the strategies contained in this post, please consult with your accounting or tax professional, or you can reach Shannon at email@example.com.