Tax Tips For Yoga Teachers
Let’s be honest: it’s more fun to write about yoga than taxes, but it’s really important to understand how taxes can impact you as an independent yoga teacher!
There’s no handbook to the business side of teaching yoga. As a result, we can either stick our heads in the sand and hope for the best or we can ask other teachers, friends, business colleagues, parents and experts in the field for advice.
What can you do to put yourself in the best position to pay your taxes? You'll pay taxes every year in one of two ways: throughout the year on each paycheck, or during tax season for work that did not have taxes withheld. Most teachers will have some combination of the two.
As a self-employed person, you can deduct business expenses: You should keep a list of what these are, along with receipts. Make categories for each type of expense and list them on a spreadsheet. Deducting expenses from the money you make decreases the amount of income on which your tax is calculated. Expenses are things like training, travel related to work, cost of professional licenses, mileage related to teaching, health care costs related to paying for insurance, office supply costs and costs related to purchasing supplies for workshops.
You will also need to pay self-employment tax: This represents your contribution into Social Security and Medicare as a self-employed person, because you don't work for an employer that makes these contributions on your behalf. For any profit you make over $400, you have to pay this tax, which is 15.3% of net earnings. To figure out your net earnings, take your profit (revenue minus expenses) and multiply by 92.35%. You’d then take that number and multiply by 15.3% to get your self-employment tax.
Ok, so now that you may be confused and overwhelmed, what are you supposed to do? Keep this basic idea in mind:
If you’re not taxed on money you make as you get it, you’d better be saving it along the way or you'll face the piper when April 15th comes.
“I can’t save the money!” you say. I hear you. For many of us, we need ALL the money we’re paid to live on. You have options, such as working out a payment plan with the IRS or borrowing money from friends or family to pay your taxes. I’ve been there. But rather than freak out, find out what you need to in order to be aware of what’s happening along the way, rather than burying your head in the sand.
Also, keep this in mind: the more you make, the more taxes you pay, unless you have substantial business deductions to offset your incoming revenue. So, while you may be feeling great, reveling in the new income from your teacher trainings, privates or those workshops you’re doing, know that if you’re not being taxed on the income, you'll have a greater liability once your taxes are calculated.
Here’s an action plan to get you more in control:
Find a tax professional to do your taxes and consult with throughout the year: You may be able to do them yourself, but the assistance of someone to double-check what you’ve done is worth it. Having an expert in the field of tax liability puts you in a better position to have them done correctly. This person can also advise you during the year when you have questions.
Keep track of every class you teach for which you are paid. Create a master spreadsheet and track each and every class you teach, date, time and how much you were paid. This is also a great place to note mileage, if any, and the resulting amount of mileage should be transferred to your expenses spreadsheet.
For every class where you're paid, indicate if the class fee is taxed or not. You can do this via the same spreadsheet noted above. Indicate “1099”, “W4”, “cash,” or “check” in a separate column.
For every class where you're paid and NOT taxed, take a certain percentage of the rate and indicate what that number is in another column. At the end of the week, total up this amount and put it in a savings account. Remember I talked about “moving parts?” Well, this is probably the biggest moving part. IF you don’t put this money away week by week, you'll either pay it on April 15th when your full tax liability is determined through completion of your taxes, or you'll pay throughout the year in four ESTIMATED tax payments. Figuring out what percentage to put away will most likely require the help of your CPA. You could start with something like 20%, but to have a better idea, consult a professional. Putting the money in a savings account along the way prevents you from having to come up with a huge payment at tax time or when you need to make estimated payments (see below).
Self-employed individuals can make tax payments throughout the year rather than waiting until April 15th. I would consult a tax professional to determine how much to pre-pay, but generally, people with adjusted gross incomes of $150,000 or less (many yoga teachers) will be advised to at least pre-pay the tax they paid last year (line 61, form 1040). This is split into four payments that are due on April 15, June 17, September 16 and January 15th of the following year.
Please note that the first estimated payment for the current year is due at the same time (April 15th) as the tax payment you have to make for the year before. This means that you’ll be paying for the year prior AND paying ahead for the year you’re in on the same day.
As often as possible, look for employers that will take taxes out of your pay. In my experience, if you work for a company like a gym or health club, they may put you on a formal payroll, in which case, your earnings will be taxed. But studio pay, privates, private contracted work you do (such as workshops or teacher training income) will not be taxed. The reality is you need to take the jobs you want, but if the income is taxed, it can be a huge relief.
Report everything. This goes without saying, but be honest and report everything you earn as income.
I’m writing this as a yoga teacher and someone who's learned along the way what's worked and what hasn’t for me. I’ve consulted with my CPA over the years. I’m not a tax professional but have tried to learn as much as I can to apply it to the job of being a teacher. I’m sure there are many other techniques that you may be using to manage your taxes, and I encourage you to share those ideas here! As dry and boring as it is to talk about taxes, you know what they say: "There are only two certainties in life: death and taxes."