In this short article, we focus on providing extremely valuable year-end tax tips for personal trainers that are self-employed.
The end of a new year is coming closer and that means rounding out your P & L.
In addition to making sure that your income and expenses are accounted for, you also want to think about all that you can do before 12/31 as it relates to year-end tax planning.
In a previous article, we took a deep dive into the tax benefits for self-employed personal trainers. Here, we are focused on what you can do before the year ends. This will ultimately help you save on taxes in the long run.
- There are several considerations to take in as it relates to year-end tax tips for personal trainers that are self-employed.
- As a self-employed personal trainer, be strategic around controlling your expenses and income.
- Be mindful of any tax-related deadlines associated with 12/31 and 4/15
- Think strategically around Charitable giving, Roth conversions, and Retirement plan savings.
When it comes to proactive tax planning, the key is to always think in advance. In the best case, there are many things to be done throughout the year. However, we know that life gets messy and sometimes a lot of important action items simply have to get done at the end of the year.
That is 100% okay in our books!
Below are the most critical year-end tax strategies to consider for any self-employed personal trainer.
Control Your Expenses & Income
Depending on how you offer your services and the ways that your clients pay, you should have some flexibility in controlling your income and expenses. This will ultimately allow you to look at each year to figure out how to optimize for tax savings in the long run.
Expenses | Tax Tips For Personal Trainers
Let’s first start with expenses, as this is an easier one to tackle. Being that you are self-employed, you will certainly have many expenses that you are able to deduct against your income.
In the best case, you may own a personal training facility where you have to purchase expensive equipment. As an example, if you anticipate purchasing a new treadmill or squat rack for your business in the upcoming year, you may want to reconsider. Instead, if you fast-forward buying that piece of equipment into the current year, you have just increased your expenses and lowered your taxable income. This assumes that you have the cash flow to support a large expense.
However, if you do not own a facility and more so work with clients virtually or at their home, you can still get creative in “pulling expenses forward”. For example, if you know that you are going to engage in more continuing education in the upcoming year, why not purchase it in advance to have more tax deductions this year?
Income | Tax Tips For Personal Trainers
The income side can get tricky, depending on how your accounting is set up. However, it is most likely the case that you are simply doing cash accounting for your tax reporting.
If you are a self-employed personal trainer, you likely have a variety of ways that your clients can pay for your services. Single sessions, packages, recurring monthly memberships, etc. You may invoice them or you could be utilizing a tech-forward fitness app that handles scheduling, taking payment for sessions, etc.
No matter your structure, the key to controlling your income is to delay invoicing your clients for your services or training sessions. Wait until the beginning of the next year to invoice or take payment. It is important to note the doctrine of “constructive receipt“. If you receive a check on 12/15 and wait until 1/15 to “cash it”, that income is still considered taxable income for the previous year (i.e. the year that the check was received).
Ultimately, if you can lower the income received at the end of the year, you are decreasing your taxable income. This helps, especially if you also increased (or pulled forward) your expenses.
Consider Charitable Giving | Tax Tips For Personal Trainers
If you are already charitably inclined, this is always a great idea to think through.
First, you want to check and see if you take the standard deduction or if you itemize your deductions.
If you do not itemize your deductions, you are not getting the tax benefit of giving to charity.
We know that isn’t really what matters, so do not let this stop you from giving to charity. However, if you are wanting to make your hard-earned money work as hard as you are, you may want to dive a little deeper into the ins and outs of how to also receive the tax benefits of charitable giving.
Enter the idea of a Donor Advised Fund (DAF). This type of fund allows you to put money or appreciated stocks into an account. This account holds (or invests) the money and you are able to “tell it” where to grant money to, such as The Red Cross, St. Judes, Feeding America, or any other non-profit organization.
In some years, you may earn a lot of money and have to pay more in taxes. When that happens, a year-end tax strategy could be to contribute a large lump sum into a Donor Advised Fund (DAF). When you do this, you likely lock in itemizing your deductions and get the full tax deduction for the contribution into the DAF for that tax year. This idea is sometimes called “bunching” your charitable giving because you are strategically contributing more in some years than others. However, you are still able to “grant” funds from the DAF anytime in order to meet your charitable goals.
Roth Conversions | Tax Tips For Personal Trainers
There are going to be some years when your income is lower than normal.
When this happens, you may want to consider Roth Conversions.
A Roth Conversion is simply taking pre-tax money (for example, funds in a Traditional IRA) and converting it into “the Roth bucket” (for example, a Roth IRA). When you convert funds, you pay taxes on the amount converted. However, you now have more funds held in a tax-free type of retirement account.
It is important to note that the idea of Roth Conversions is compelling, but it doesn’t always make sense for everyone. The rules of thumb are as follows – If you(r):
- Income is lower than your normal (or average) earnings, explore Roth Conversions
- Expect future tax rates to increase across the board, explore Roth Conversions
- Expect your personal income tax rates to be higher in retirement than they are today, explore Roth Conversions
There are a lot of unknowns and uncertainty with these three rules of thumb. Therefore, you always want to mind the details when doing this. There are certainly benefits to having more tax-free funds, but everyone’s financial situation is very different.
The best approach is to make it a habit to run a tax projection near the end of the year. If the numbers show that a Roth Conversion makes sense, take action to get it done before 12/31.
Review Self-Employed Retirement Plans | Tax Tips For Personal Trainers
When it comes to establishing and funding retirement plan accounts, there are always deadlines to consider.
The last thing you want to do is miss these and lose out on massive tax deductions relative to others.
In a recent article, we specifically dive into the many different types of retirement plan accounts for self-employed personal trainers. This article will be helpful in understanding which type of account makes sense for you if you do not yet have one established.
On the year-end tax planning front, the key is to be aware of the 12/31 and 4/15 deadlines.
In short, there are some self-employed retirement plan accounts that have a hard 12/31 deadline to hit if you have any desire to establish a new account. For example, you must establish a Solo 401(k) by 12/31 in order to make a contribution for that tax year. Furthermore, you also must have an employer identification number (EIN) to open this type of account. While this is just one example, it is important to be mindful of these details as you plan for any retirement plan contributions. Even though it may seem like there are a lot of hurdles, the value in tax deductions should not be overlooked.
When it comes to taxes, things can get tricky.
With this article, we hope that these quick tips help you as you plan ahead for rounding out this tax year!
Additional Reads & Resources
Top 8 Year-End Tax Tips
10 Year-End Moves To Lower Your 2021 Tax Bill
Tax Tips for Self-Employed Personal Trainers
How to Successfully Manage Taxes as a Freelance Fitness Trainer
Taxes For Personal Trainers
Personal Trainer Tax Advice
Top Tax Deductions For Personal Trainers
For more resources, you can always visit our “Resources” page.