Tax Tips for Yoga Teachers and Instructors
As a yoga teacher, you are tasked with helping people relieve stress and find inner peace. Unfortunately, tax season can be stressful for everyone, and yoga instructors are not exempt. Luckily, with a little preparation, tax season for yoga instructors can be easy to get through.
Keep reading to find out some tax tips for yoga teachers and instructors, and learn how you can make tax season as stress-free as your yin yoga class.
Employee or independent contractor?
How you file taxes as a yoga instructor mainly depends on whether you are an employee or an independent contractor.
Filing taxes as an employee
If you are a yoga instructor employed at a yoga studio, filing taxes is a simple process. Your employer will give you a W-2 form at the end of the tax year, which is the main document you need to file your personal income tax. Make sure that you are keeping your pay stubs to keep track of your income.
Filing taxes as an independent contractor
Taxes are a little more complicated for people who are independent contractors, which many yoga teachers are classified as. Working as an independent yoga teacher has many benefits, but one of the major downsides of the trade is having to pay your own taxes. You cannot rely on an employer to provide you with all the documents you need, so there is much more to keep track of throughout the year.
Let’s dive deeper into taxes for independent yoga teachers and instructors.
When do independent yoga teachers pay tax?
As an independent contractor, if you earn more than $400 from a single client/customer, the IRS classified you as self-employed and you are obligated to report this income in your annual tax return.
Taxes are pay-as-you-go for independent contractors in the United States, so you will have to make quarterly estimated tax payments to the IRS throughout the year if you expect to owe at least $1000 in taxes and your withholding and refundable tax credits will cover less than 90% of your tax liability for the current year (100% of your tax liability for the previous year–whichever is smaller). These quarterly taxes are typically paid in April, June, September, and January.
If you underpay your quarterly taxes, depending on the amount, you may have to pay it when you file your taxes or be subject to a late fee penalty.
How much tax do yoga instructors have to pay?
Not understanding taxes is a common mistake among first-year yoga teachers, especially for those who come from traditional jobs.
Owing thousands of dollars in back taxes is daunting if you are not prepared. However, with some understanding of how much you might have to pay in taxes during tax season, back taxes become more manageable as you know how much you should be saving throughout the year.
You need to develop at least a basic understanding of how much in taxes you have to pay back.
As a self-employed individual, you’re in charge of the taxes that would have been automatically deducted from your pay if you were an employee, including your Social Security and Medicare taxes.
Because you are self-employed, meaning you are your own employer, you’re also responsible for paying the employer half of these standard taxes, which is 15.3%. This is called a self-employment tax.
How to calculate self-employment tax
To calculate your taxes as a yoga teacher, you must calculate your net earnings for self-employment for the year. This number is your gross income minus your business expenses, and you use IRS Schedule C to calculate this amount.
Generally, 92.35% of your net income is subject to self-employment tax. Once you determine that number, apply the 15.3% tax rate.
From there, you must also pay income taxes based on your tax bracket. Independent yoga teachers may also have to pay state income taxes as well as local taxes.
You need to provide your Social Security Number (SSN) or individual taxpayer identification number (TIN) when you pay the tax.
Tax tips for yoga teachers and instructors
Here are some extra tips for yoga teachers to keep up with their taxes.
- To stay ahead of your taxes, be sure to continuously update your income and expenditures. You may even want to keep a savings account solely for your taxes and set aside money every time you get paid. Financial professionals recommend saving 30% of your income for taxes.
- If you’re having trouble keeping up with your taxes, consider hiring a tax professional, such as an accountant. The IRS constantly updates their tax laws, and your taxes may become increasingly complicated to calculate as you work for more studios and acquire more income, so consulting an accountant may be the safest way to help ensure that you are filing your taxes correctly. Be sure that any tax professional understands the yoga business to help you get the deductions and credits you deserve.
- Learn what you can and cannot deduct to help save you money during tax time. For yoga teachers, these are things like training, travel, equipment, advertising, and insurance.
- If you are a yoga instructor who is married to a spouse with a traditional job, you may have them increase their withholding to lessen your tax bill.
- Don’t expect to earn a tax refund as an independent yoga instructor. It is uncommon that self-employed individuals overpay their quarterly tax, which is the only circumstance in which they would receive a refund.
- Yoga instructors need to keep detailed records of their payments and expenses. Always have these documents ready in case the IRS requests them.
Tax forms for yoga teachers
Like all independent contractors, yoga teachers should receive a 1099-NEC form from every studio or client who paid them $600 or more. This form was formerly the 1099-MISC form, but it changed in 2020. You must report the income on your 1099-NEC, although you do not have to submit the form to the IRS yourself, as your studio or client will have already done that.
If you do not receive a 1099 form from one of your studios or clients, contact them and request that they send the form to you as soon as possible. If you still don’t receive it, review your deposits. The dollar amount that you received in payment must still be included in your tax return.
As mentioned, yoga instructors must use Schedule C to claim their self-employment income and business expenses to calculate their net income.
Preparing your taxes as a yoga instructor
Teaching yoga is a dream job for many, but yoga instructors must keep up with their business income and expenses to pay the proper amount of taxes to avoid any penalties from the IRS.
The best way to do this is to track your income and expenses and save a portion of your income for tax purposes. Understanding the different taxes that you have to pay and regularly calculating the amount owed will take the stress out of tax season.
Form Pros can make life as a yoga instructor easier. Form Pros provides access to tax documents that every yoga instructor needs, such as 1099 forms, W-4 forms, pay stubs, and contractor agreements to save you time and stress come tax season.
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