Why does tax advice vary with different accountants?
I don’t think it’s so much variability between accountants (this isn’t a super-complicated area of tax law). Where I think the variability comes from is in the individual trainer’s other tax facts and outside income. A single person who doesn’t itemize, has no kids, and isn’t a homeowner will have the same income and deduction rules for their fitness business as a person who is married, has 3 kids, owns a home, and itemizes, but their tax returns will look totally different.
Two people who train clients, for similar hourly payment at two different gyms can have completely different tax returns. It’s not so much variability in the tax positions taken (there are some grey areas but not a ton) as the misunderstanding of the variability of people’s individual tax facts.
The only way fitness tax deductions actually save us money, even if they’re legitimate deductions, is if they reduce our taxable income on our return. But that doesn’t always happen, not because of the legitimacy of the deduction, but because of an individual’s tax facts.
What tax information is often overlooked by personal trainers?
Know whether they are being treated as an employee or an independent contractor. Employees receive a W-2 and have taxes taken out for federal, state, and payroll taxes, so some of your taxes are paid to state and federal government before you get your check.
Independent contractors should receive a 1099 if they make more than $600. (Even if they make less than $600, the income is still taxable, but for the convenience of the entity making the payment, they don’t have to give you a 1099.) Income from independent contractors doesn’t have federal, state, or payroll taxes taken out. This matters because you will be responsible for paying the federal, state, and payroll taxes when you file your returns.
Have a general idea of what you can deduct. If you do use an accountant, when they return your receipts and tax materials to you, ask them to go over the return to you so that you can understand what they deducted (and why), what they didn’t deduct (and why), and they might give you hints on how to save money next year.
This is important for two reasons (1) Even when you have an accountant prepare your tax return when you sign it, you’re agreeing that you understand what they did. (2) Once you take the time to understand your tax return, you might choose to file it on your own the following year(s). So, rather than making a yearly investment, you make a one-time investment and educate yourself.
What is the average amount of time and financial investment for an accountant?
This depends on how organized for taxes you are. Most accounting agencies will give you a tax organization folder, meaning a folder, binder, or list of things they need you to collect in order to complete your return. If you’ve kept your receipts for expenses during the year, and write what the expenses are for so the accountant can categorize them and enter them on your return, it can be just a couple hours.
If you hand your accountant a shoe box full of receipts, you might miss out on some deductions if the accountant doesn’t understand why an expense is relevant to your business.
Accountant fees can vary greatly, from $50 per hour on up. The more organized you are, the less time it will take for your accountant to assemble your return.
How can an accountant save a personal trainer time and money?
An accountant, in asking you questions about your expenses, might uncover things you didn’t know were deductible. This is especially important for independent contractors but is also relevant for employees.
Another legitimate reason to use an accountant to do your taxes is that it saves you time and stress. Most people don’t like doing their taxes, and the hours you would be doing your taxes are hours you could be training clients, spending time with your family, etc.
When should a personal trainer contact an accountant?
Ideally, a personal trainer should locate an accountant before the end of the year or very early in the year, and agree, together, on when the return will be completed. Engaging them early will create less stress for both of you, and will give you more time to collect your materials in a way that makes it easier, thus faster, thus cheaper, for your accountant to process on your return. The accountant might also be able to do an end-of-year income check to determine whether you need to make estimated tax payments before your file your return.
Personal trainers help people get in shape and accountants help people monitor their money. It’s always helpful to have a coach when you’re entering territory outside of your comfort zone or expertise.
References and Resources
Nancy Korf is a former CPA and tax accountant residing in Portland, Oregon. When she is not attending to children and cats, she does personal training and teaches multiple group-exercise formats. Nancy is also a ZES(tm) for the Zumba Gold program, educating Zumba(r) instructors in five states to teach inclusive fitness classes. Her mission is to help individuals live their most vibrant lives.
Nancy provides a unique perspective for us about personal trainer taxes.
Tax Planning for Personal Trainers: Getting Organized
Tax Planning for Personal Trainers: Estimated Payments
Tax Deductions for Personal Trainers
Tracking Mileage for Personal Trainer Tax Deductions