There’s a pretty clear line between being an employee and being an independent contractor in most professions, but that line can blur if you’re a yoga instructor who teaches at more than one studio. Preparing your taxes depends on which type of yoga instructor you are.
- Independent Contractors vs. Employees
- Schedule C for Independent Contractors
- Schedule A for Employees - for Tax Years Prior to 2018
Independent Contractors vs. Employees
If you’re not exactly sure whether you’re an independent contractor or an employee, check the tax documents from all the studios where you work. If you receive a 1099-NEC form, (1099-MISC in prior years) then the studio is likely classifying you as an independent contractor.
However, you’ve probably been classified an employee if you receive a W-2 form. You’ll notice that the W-2 includes boxes indicating how much Social Security, Medicare, and income taxes were withheld and forwarded to the Internal Revenue Service on your behalf.
Schedule C for Independent Contractors
From a tax perspective, being an independent contractor offers several advantages, although it also comes with added costs responsibilities. You likely won’t have to pay tax on all your income because you’ll be able to deduct business expenses using IRS Schedule C when you prepare your tax return. The resulting number after business deductions is what you’ll enter on your tax return as self-employed taxable income.
Be careful with your business deductions, however. The Internal Revenue Service says that business expenses must be both “ordinary and necessary” to be deductible.
- Ordinary means that other yoga instructors probably spends money on the same expense.
- Necessary simply means that the expense is integral to doing business.
Look around your studio and what do you see? The costs of those mats, straps, and blocks are likely deductions, as well as:
- The percentage of the monthly costs of maintaining your home, if you have office space there dedicated solely to your yoga business.
- Yoga professional memberships fees (Yoga Alliance, YogaGlo and Gaiam)
- Malpractice and liability insurance, as well as business legal and professional services
- Music and music subscriptions for classes (CDs, iTunes Music, Spotify, and Pandora)
- Aromatherapy, essential oils, and supplements for classes
- Yoga certification fees and training expenses
- CPR training and certification required for teaching yoga
- Yoga website subscriptions for your business (e.g. YogaGlo)
- Continuing yoga education (yoga and meditation workshops, classes, and seminars)
- Yoga apparel for teaching your classes
Schedule A for Employees - for Tax Years Prior to 2018
If you’re considered an employee instead of an independent contractor, prior to 2018, you can deduct some work-related expenses at tax time, but you must use Schedule A, rather than Schedule C. The IRS classifies work-related expenses for employees as miscellaneous expenses.
- To deduct these expenses, you must forgo the standard deduction and itemize your deductions on Schedule A instead.
- You may end up owing more in taxes overall by itemizing, so be sure you compare the total of your itemized deductions to the standard deduction.
- Opt to take the standard deduction instead if the total of your itemized deductions doesn't exceed the standard deduction for your filing status.
Schedule C allows independent contractors to deduct 100% of most business expenses. Schedule A is different. You can deduct only those expenses that exceed 2% of your adjusted gross income on Schedule A, and only if your employer doesn’t reimburse you for them. The same “ordinary and necessary” rule applies here as well.
Beginning in 2018, these unreimbursed employee expenses are no longer deductible.
Paying Your Taxes
When you're self-employed, you don’t have an employer to withhold and send in taxes for you, so you’ll have to take care of this yourself. You’re responsible for making estimated tax payments, usually four times a year.
This includes income tax as well as Social Security and Medicare taxes. For employees, employers contribute 50% of your Medicare and Social Security taxes, but you have to pay 100% yourself as a self-employed contractor. This is called the self-employment tax.
Proving Your Tax Deductions
If you’re an independent contractor, it helps at tax time if your business has its own independent bank account. Mingling your business and personal expenses can create a snarl that’s difficult to straighten out. If the IRS ever asks you to prove any of your deductions, you can easily trace them to one place—your business account.
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