[C Lenart]

Income Tax Issues For The Self-Employed Personal Trainer

Here are some tax issues for the self-employed that were recently discussed in my class titled "Creating and Operating Your Personal Fitness Training Business" which is currently being taught through the Fitness Certification Program at UCLA.

> Did you know that as a self-employed personal trainer that you must pay the IRS a Self-Employment tax?

This self-employment tax is your Medicare and your FICA or Social Security contribution as must be paid IN ADDITION to any regular income tax that you owe. The self-employment tax is 15.3% of your income from self-employment, such as a personal trainer. Note: The Self-Employment tax DOES NOT tax any income you might have from other sources like rental income from properties, stock dividends, and capital gains.

As stated previously, The Self-Employment tax is 15.3 of your income from self-employment. If you have worked for an employer now or in the past, your contribution to FICA and Medicare is or would have been 7.65% plus your employer's match of another 7.65%. As a self-employed person, you have no employer match so you must pay the entire amount of 15.3%.

Like I said before, the Self-Employment tax is due IN ADDITION to any other regular income tax that you owe. For example, if you made $40K per year, from your career as a self-employed trainer you would have to pay the IRS a self-employment tax of 15.3% or $6,120 PLUS any regular income tax that you owe.

> When to pay

As a self-employed person, you must pay the IRS in 4 installments per year. These are called quarterly installments but are not due every 3 months as you might expect. The due dates for your quarterly installments are 4-15, 6-15, 9-15, and 1-15.

> What to pay

To avoid penalties as a self-employed person, you must calculate your current estimated income for tax purposes and that figure has to be at least 90% of your current year liability OR 110% of your prior year tax liability.

> Tax Deductions

As a self-employed trainer, you can deduct the use of your car or vehicle in your business. (IRS Publication #334) You can either deduct the actual expenses for the vehicle which includes depreciation and other expenses OR use the standard mileage rate which is 44.5 cents per mile for 2006 and 48.5 cents per mile for 2007. Caution! If you choose to use the standard mileage rate for a year, you CANNOT deduct your actual expenses for that year except for business related parking fees and tolls.

I think that is enough for now. Keep in mind to consult your tax prepayer or accountant for specific issues as they relate to your tax situation. I will post more info on possible deductions if there is interest.

[illadelpa]

Are there any other deductions that you can add, and is there an amount that you must make to file.

[C Lenart]

illadelpa:

Sorry to get back to you so late but exams at UCLA this quarter dragged on forever. Just turned in my last quarterly project two days ago.

First, you must pay Social Security and Medicare regardless of what you make. This is the self-employment tax and you must file regardless of what you make. On the other hand, you "may" qualify for the Earned Income Credit (EIC) if your income is below a certain amount and you meet other qualifying provisions. if you do qualify for the EIC, you may be able to get a refund on most of the money that you pay in for Social Security and Medicare. To see if you qualify for the Earned Income Credit, please consult Publication 596 under Earned Income Credit at Irs.gov

Here are some more "possible" deductions for self-employed people:

Self-Employed Health Insurance Deduction
You may be able to deduct 100% of the amount paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following.

A self-employed individual with a net profit reported on Schedule C, C-EZ, or F.

A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), box 14, code A.

A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.

The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040.

Capital Expenses
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. There are, in general, three types of costs you capitalize.

Going into business.
Business assets.
Improvements.
Personal Expenses
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct as a business expense only the business part.

Business Use of Your Home
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Publication 587, Business Use of Your Home, and Standard Mileage Rates.

Business Use of Your Car
If you use your car in your business, you can deduct car expenses. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Business Expenses

Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.
Retirement Plans - Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees', retirement.
Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
Taxes - You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.
This list is not all inclusive of the types of business expenses that you can deduct. For additional information, refer to Publication 535, Business Expenses.