There are very few studio owners who opened their fitness businesses excited to navigate the labyrinth of tax codes every owner must face. But the more time you invest in developing an effective tax strategy, the less money you will end up spending paying actual taxes. These five tips will help make tax time less painful.

Your taxes have to be filed by April 15, but it pays to make tax planning a year-round task. Sit down with your accountant and come up with a plan for how you are going to track your expenses throughout the year. The plan should also include what expenses you should be keeping record of and how often you need to review (monthly or quarterly).

There are more than 300 tax deductions available for small businesses. Some examples of commonly overlooked deductions fitness studio owners can be making include:
·      music used during classes
·      any equipment or gear used by clients
·      health and liability insurance
·      legal fees
·      equipment or gear used by members
·      costs related to continuing education or professional association membership
·      subscriptions to fitness magazines.

If you are not deducting all that you can, you may be paying more in taxes than you need to and shortchanging your bottom line in the process.

Any expense that you plan on deducting from your tax payment must be appropriately documented. The IRS can throw up a red flag at anytime and ask that you produce proof of any and all expenses.

Throwing receipts and invoices into a drawer and hauling them to your accountant’s office in April when you are preparing your annual tax filing is not efficient.

Maintain an account book or a diary, log, statement of expense or similar record of the date the expense was paid, the purpose for the expense and how it relates to the studio, a client or your employees. While this may seem like a tedious task, it will make preparing your tax return at the end of the year easier.

Keep canceled checks, credit card receipts, hotel bills and other documents to substantiate your expenses.

If you incur occasional out-of-pocket cash expenses in your business, keep a detailed daily log, even if the expenses are for minor items like telephone calls, tips or tolls. Keep a written record detailing the amount, date and purpose of each expense.

You should hold on to all your expense documentation for at least three years. Keep receipts and other paperwork organized in folders. Back up your digital data on a hard drive or flash drive, and keep it locked in a safe location.

No studio wants to get blindsided with a huge tax bill. Part of the goal of your tax planning should be to keep your tax bill as consistent as possible, year over year, so that you are able to budget for it.

This fall, speak to your accountant about accelerating or postponing income or deductions. This is a year-end tax strategy that helps you avoid spikes in taxable income that might put your studio in a higher average tax bracket than you would be in had you evened out the amount of taxable income between the current and next year.

To accelerate income, collect any big debts, sell any assets or offer discounts for annual membership bought before December 31.

Postponing deductions is an easier way to manage your tax bill. Instead of making a charitable donation during the holidays, wait until January. If you need to replace equipment or are considering upgrading your studio’s website, hold off until next year. Any large expense can help offset any spike in income.

Payments made to independent contractors are tax deductible, but put it under the category of expenses, not wages or benefits.

While many studios hire instructors and independent contractors, the IRS is not particularly keen on this type of arrangement. An independent contractor is someone who does work for your studio but isn’t an employee. Instead of issuing a paycheck, you pay for services rendered and do not withhold Social Security, unemployment or Medicare taxes.

If you use self-employed instructors at your studio, be sure to have the correct paperwork on file to avoid an audit.

Before paying any independent contractor, be sure to have his or her signed W-9, which includes the contractor’s taxpayer identification number, name and address. You can download these forms directly from the IRS website.

Create an independent contractor agreement that is signed by both you and the instructor. This agreement should spell out the following:
·      date the agreement was made
·      length of time you agree to work together
·      number of classes the instructor will be expected to teach per week
·      compensation (per week, per class or per each client who attends the instructor’s class)
·      duties and services to be provided
·      description of circumstances under which the arrangement will be terminated
·      any non-compete details.

Keep your instructors’ resumes on file as additional documentation that they are in business for themselves.

At the end of the year, you do have to issue 1099-MISC forms to each contractor you have paid. The 1099-MISC must be given to the contractor no later than the last day of January the following year, and a Form 1096 must be sent to the Social Security Administration by the end of February, with copies of the 1099 forms.

If your studio is in Alaska, Delaware, Montana, New Hampshire and Oregon, then congratulations! You do not have to pay sales tax on your retail.

Otherwise, if you have a retail component to your studio, you are subject to what is called the seller privilege tax. State and local governments consider it a privilege to make retail sales on their turf, and charge a percentage that must be paid by the retailer. This tax is in addition to consumer sales tax, which gets tacked on to a purchase at the point of sale.