Tax Strategies For Health, Fitness and Wellness and Business Owners

Chris McCombs (CM): I'm here with Bob Glasgow. Bob, who are you and what do you do?

Bob Glasgow (BG): I'm a CPA and profitability coach and business advisor with Strombeck Consulting in Tampa, FL. And I work with small business owners who want advice from their

CPA. Like my clients, I'm entrepreneurial; in addition to being a CPA in public practice, I work also as a corporate controller in core controller positions in private

industries, so I have a varied background and track record with working with business owners.

Typically I establish a relationship with my clients where we meet on a regular basis, a minimum of four times a year. I encourage my clients to call me on a routine basis.

There's no extra charge for that, I encourage that. And also as part of the relationship I prepare tax returns for the business and for the individual owners. And I do all that

for a fixed annual fee so there's no surprises as to what something is going to cost; it's all upfront.

CM: Why would a fitness professional consider working for his or herself as compared to being an employee?

BG: I think a lot of it has to do with their need or desire to — or they have that entrepreneurial spirit. If they're the type of person that has a desire to build something

from nothing, they have a dream and the ambition to reach it, if they have that desire to be their own boss and be the decision maker, if they want to fully enjoy the benefits

of all their efforts at success, then they would certainly probably want to be going into business for themselves.

Reasons not to go into business for yourself, or maybe to delay that, reasons to work for somebody else might be first of all to better learn the business from someone who is

more experienced in being a business owner; there's a learning curve. Secondly, to have time to develop the needed skills to operate a business. Another reason might be to save

up money typically needed to start up your own business. And lastly, just time to get exposure, to make contacts, and build and develop relationships. So those are things you

might want to do working for somebody else before you get started on your own.

CM: Why is it important to track revenues and expenses?

BG: Well I think it's vitally important to keep track of that because you need to track the progress that you're making in building your business. Another reason is the Internal

Revenue Service requires it. As a business owner you need to report your revenues and expenses to the Internal Revenue Service on some kind of business tax return, whether it be

a separate corporate tax return or a partnership return or as a sole proprietorship.

Usually what I encourage people to do who are jus starting out, the first step would be to create a financial planner, what we call a budget, to determine what it will really

cost to operate your business and to know how much income it will take to get started, how much it will take for you to pay all the business expenses, including paying yourself.

One of the things in putting this budget together, the expenses you need to be able to look at are, for example, how much it's going to cost to operate your car, your vehicle,

to travel on business, whether you're traveling to see your clients at their home or going to the bank or the post office, wherever it is you drive; it's going to cost money to

operate your car. You've got other expenses like your telephone, your cell phone, PDA, fax machine, internet service, all of that costs money. You need to have insurance of

various kinds, like liability insurance, your own health insurance, maybe worker's compensation insurance. There's always marketing, the costs of marketing your business to

build a website or have brochures that tell about your business, to have business cards, to do other kinds of advertising; that all takes money.

If you're the person that's going to have a studio and to have a facility, you have to pay rent, you're going to have utilities, you're going to have to stock it with equipment

and so on. As a business owner you're going to need a computer and with the computer goes all the accessories and supplies and software; that all costs money. Other things,

other office supplies, stationery and postage. And then you're going to have fees for some kind of accounting or bookkeeping help, tax return preparation. You may need to

consult with an attorney to talk about litigation issues. You may need a professional sales and marketing coach. You may need an information technology guy to help you with your

computer if you're setting up a network and also web design.

There's all kinds of things to think about before you go into business and putting this financial plan together and a budget to see what it's going to take, that's information

you're going to want to know before you get started. And then once you get that framework together, what your budget is going to be, that will become the framework for tracking

all your income and expenses so you can see what you figure it's going to cost versus what you actually spend, and that will tell you, once you compare a budget to actual you

can see where you're on track and where you're off track and it'll help you in making business decisions.

Also, in understanding your expenses it'll help you to determine how to price and how to sell your products and services, whether you're selling your services at a price that's

high enough to cover your overhead and make a profit, or if you're coming in too low and not being able to pay your bills. So those are some reasons why you should track your

revenues and expenses.

CM: Let me interject here really quick, Bob. I'm used to talking to trainers who talk really fast and don't put a lot of thought into what they say, and you put a lot of thought

into what you say, so sometimes when you pause I’m ready to jump in. What I'm going to do is whenever you're done with the question, just say, "Next," and then I can go to the

next question, because I don't want to interrupt you because you're giving a lot of good content. But you put a lot more thought into what you say than a lot of people I’m used

to interviewing, so when you're done with a question just say, "Next."

And there's other things in talking about the actual process of tracking your revenues and expenses. Something I would like to say is that from what I see in working with other

small businesses including professional fitness trainers, it's important to separate business transactions from personal transactions. So often I see where somebody will open a

business and they have their business bank account and they have their credit card, and they use their business bank account to go out and make personal expenditures; or vice

versa, they'll use their personal bank account to go out and make business expenditures, and the same with the credit card. And when that starts to happen you're starting to

intermingle business and personal transactions, and that makes it really sticky and really difficult in really tracking what the business revenues and expenses are. And it kind

of becomes a nightmare for whoever's trying to do the accounting, whether the fitness trainer's trying to do it himself or he hires somebody else to do it. So I would always

encourage the fitness trainer to make sure he sets up a business band account and uses that account strictly for business, and if he's going to get a credit card to have a

separate credit card just for business transactions, and that would make the whole accounting process much cleaner and much easier.

It's also important to have a good filing system and keeping track of the money you bring in and the money you expend for the business. Whenever you pay bills or have receipts

from your credit card, you want to keep those in different files, by vendor, by credit card. When you're bringing in revenue, again, if you're just starting out, something as

simple as a hand written invoice pad so you can track who paid you, and how much they paid you, and when they paid you, and what they paid you for. So all of that's going to be

valuable information. When you get down the road you're going to want to see where you're making your money and you can be able to track how profitable each call, each session

is going to be for you.

And then there's also software available to help with accounting. Again, if you're a do-it-yourselfer there's a software called QuickBooks, which is probably the most popular

and it's relatively easy to use. It might be a good idea to find — if you're not real savvy at using accounting software — you can go to the Intuit website; Intuit is the

manufacturer of QuickBooks, and they can help you find somebody who can help you get the QuickBooks set up on your computer and teach you how to use it, teach you how to record

transactions and print the informational reports that you need for your business.

And lastly I would just say that in starting, you really need to start at the beginning. I see far too often where people go into business and they wait a year before they

really start tracking their accounting transactions. And they bring in the old shoebox full of receipts and it just becomes a nightmare if you don't start from the beginning. So

when you first start your business you need to already be thinking about getting your accounting process organized and in place.

CM: What is a tax write off and what kinds of things can fitness professionals write off?

BG: Again, when it comes to taxes, a business entity needs to separately report its income and expenses to the Internal Revenue Service. As far as a tax write off, you're going

to want to be able to track your tax deductible expenses because you offset that against the income you earn from your business and the net, your net income, your income less

your expenses is going to be taxable and you're going to have to pay various kinds of taxes on that.

It's important for the business to record its revenues and expenses because we have to report it to the Internal Revenue Service and you're going to track your income and from

that income you're going to have tax deductible expenses that you use to operate your business. The net of that income less your expenses is going to result in taxable income

and, of course, we never want to pay any more tax than we're legally required to, so we always look to try and minimize our tax liability. Any ordinary and necessary expenses

that are incurred for the purpose of generating your business income is tax deductible, that's just a general rule, any ordinary necessary expense.

So we want to make sure that we don't — in properly recording your expenses we want to make sure that we record everything that qualifies as tax deductible for your business.

Some things that are probably marginal as far as what is tax deductible and what is not, I've had one client ask me, he was going out to purchase a business suit because he said

in his role as a personal fitness trainer he was going to have to go out and do public speaking and that he would have to have a dress suit to wear. So we have to stop and think

about whether that dress suit is an ordinary necessarily business expense or is it not, because something like a business suit you would also normally wear for personal reasons,

whether you're going to church or to a wedding or to a funeral or other event like that. So a business suit, if somebody's going to be doing a lot of public speaking and needs

that business suit for business, then it could arguably be a business production.

So you have to look at each expense to see whether it is necessary in helping build your business and organize and manage and run your business. If a fitness trainer has a wife

that wants a new dress, that's obviously not a business expense, it's a personal kind of thing. So when you ask what is a tax write off, it's the ordinary and necessary business

expense that we can use to offset — [end of track]

CM: All right, Bob, you are on.

BG: Okay, the kinds of things that fitness professionals can write off are what we call any ordinary and necessary expenses incurred for the purpose of generating business

income. Any of those items are tax deductible. Examples of that can include the business portion of your automobile expenses; can include expenses related to the use of your

telephone, whether it be your land line or a cell phone, or intent service, fax machine, and so on; any insurance premiums that are related to operating your business, such as

liability insurance or health insurance if you are an owner-employee of the company. We also can expense marketing and advertising expenses for the business, such as creating

websites, maintaining websites, producing brochures, business cards, yellow pages or other types of advertising like that. If you're operating a studio facility the rent would

be tax deductible, the utilities and all the equipment that you stock the facility with would all be tax deductible.

In addition, you can have a computer that you use for business and the computer will be tax deductible along with accessories, printers and so on, supplies for the computer,

software you have to purchase to help manage the business. In addition you have office supplies and postage. We can have professional fees for accounting and bookkeeping people.

We can have professional fees for a sales and marketing coach, or an attorney to help make sure you're properly protected against litigation. You can expense the use of an IT

person, information technology person, if you're needing to network your computers or otherwise maintain your computers.

Another area that is often questions is the area of meals and entertainment, and the general rule is when you have expenses for meals and entertainment you need to make sure

that they are business related. So, for example, you can take a perspective client out to lunch the business can pay for that, however when it comes time to prepare the tax

return only 50 percent of meals and entertainment expense are income tax deductible. So you can have the business pay for business related meals and entertainment, but they are

typically only 50 percent tax deductible.

Similar with your vehicle usage. Typically your car you use for both personal and business. For the sake of business expenses you can deduct the business portion of all your

vehicle expenses.

CM: What about clothes?

BG: Clothes? If you have anything that is uniform related that is required for your business, that uniform would be tax deductible. If you have clothes that are normally, you

would consider personal that you would not necessarily have to wear to work, those would probably not be tax deductible. Again, you need to make a differentiation between if the

clothes are required for business or if they are not required for business.

CM: What kind of person should fitness professionals hire to get help with their taxes?

BG: One of the ways I look at it is you typically want to get a CPA, but the question that I would pose is, "What should I expect from my CPA?" And I kind of have an outline for

the fitness professional to ask when looking at hiring a CPA. First you want to ask does the CPA understand my business and understand the industry that I'm in? In other words,

you might want to ask how many other fitness professionals does this particular CPA work with and advise. Another question might be how often do you meet with your CPA? You want

a CPA that would probably want to meet with you on a regular basis and then you want to ask will they meet at my office or their office? It's always a good scenario to have your

CPA come by your office if you have one, a studio or something like that, to understand and get an idea of how your business works and how business transactions are handled and

how they occur.

Another thing, do your financial statements provide the information that you need? So in working with a CPA you want to make sure that he helps you understand how to interpret

the financial statements. What do these printouts full of numbers mean? What do they mean to me? I need help interpreting them. And, also, do you receive the information timely?

Getting financial statements eight months after the fact is usually not real helpful and you want to be able to get information that's timely and of value and you can interpret.

If a fitness trainer is kind of a do-it-yourself type as far as tracking and doing his own accounting work, you want to find an accountant or a CPA that can help you get your

accounting system in place and learning how to track all the right business expenses, and also you might want a CPA that knows how to fully utilize the business software that

you're going to use. For example, if you're going to purchase QuickBooks, you want somebody that can help teach you how to use it.

You want to find a CPA that can bring value to your business. A question might be does your CPA help increase your company's profitability? And does he or she bring value that

outweighs the cost of their services? So one might ask, "Am I getting value, am I getting advice that's worth what I’m paying for them?"

And the last question might be are you happy with the advice you get from your CPA? First of all, are they providing any advice at all, and are they being proactive, and would

you consider your CPA to be an accountability partner? Is your CPA working with you to help set and achieve your goals and help you through any obstacles that you're having

along the way?

So that's kind of a summary of the kind of person that you're going to want to be looking for in helping with your accounting and taxes.

CM: What are the benefits of forming an LLC or an S-Corp?

BG: Well the main advantages forming a separate entity like that, an LLC or an S-Corp is first and foremost limiting your liability. And any separate entity that you form should

help you do that, but that's really a question that you'd want to ask your attorney as far as liability issues. In relating to taxes, an LLC is really not a taxable entity in

and of itself. An LLC is a legal entity. And so when it comes tax time, if you're an LLC you have to make an election whether you want to be taxed as a sole proprietor, if you

want to be taxed as a corporation, or if you have other partners you can also be taxed as a partnership, so that's an election that you need to make if you're forming a limited

liability company.

Both of these entities are what we call flow-through entities. In other words, these entities do not pay income taxes on their own. All the revenue and expenses from these

entities flow through to the individual's personal income tax return, so that's important to know. As far as an S-corporation is concerned, the employee becomes an employee of

the corporation and so it's expected that the owner-employee take some type of reasonable compensation or reasonable salary, then they're required to pay the related payroll

taxes on that salary. If you form a limited liability company and you choose to pay your taxes as a sole proprietor, then you have to pay social security tax, Medicare tax, and

federal income tax on the net income of the business, that's the revenue minus expenses. Whatever that bottom line is, that's what you're going to pay social security and

Medicare and federal income tax on.

So in comparing the two, if it's somebody that's just starting out from scratch, starting their own business as a personal fitness trainer, they may want to start a limited

liability company and pay their taxes as a sole proprietor because they can minimize the amount of those taxes that they're going to have to pay. As their business grows larger

and their income, their revenues grow more substantial they can always switch to become an S-corporation. And the reason that the might want to do that is because, again, with

an S-corporation all you have to take as salary is what's called a "reasonable amount," so you can have better control over the amount of social security, Medicare, taxes that

you have to pay on your compensation. Whereas if you are a pretty sizable company and you are still a sole proprietor, you'd have to pay the social security and Medicare tax on

the entire net profit of the business.

So one thing to think about and what I might advise is if you're just starting out, you're a one man operation and it's small, start out as an LLC and pay your taxes as a sole

proprietor. Then down the road as your business grows and the numbers get substantially larger you can always switch and convert to pay your taxes as an S-corporation.

CM: To the fitness professional just staring out, what would you say to them in terms of how to get a handle on their numbers, taxes, and so on?

BG: Well as I talked about earlier, the best thing to do just starting out is to first of all put together a financial forecast of a budget of what you believe it's going to

cost you to operate your business. And, again, establish that in the framework of all the various types of expenses that we've talked about. How much are you going to spend on

your car and on your phone and on your marketing and advertising? What is it all going to cost you? And then use that framework to track your revenues and expenses so you can —

as time goes by you can track your actual expenses compared to what you had budgeted and forecasted.

Again, I would encourage the person to hire a CPA or other financially savvy person to help them understand their numbers if that's something they need help with. So get help,

make a plan, make a forecast, and then from the get-go track your revenues and expenses closely so you can measure the results of your business operation.

CM: Bob, where can people learn more about you and your services?

BG: Our company website is www.profitcoach.com. Or you could contact me personally by email. My email address is RGlasgow(at)profitcoach(dot)com. My telephone number is (888) 855-1550.

The biggest problem I see is that most people in the health, fitness or wellness business have no financial plan to start with, and I've seen people that they end up living on

four or five credit cards until they can get their business up and running. And if you have to do that, that's fine, but when you start in the business and you have no capital

of your own, that kind of financing can become very expensive. And so what I was talking about earlier at the very beginning about people that may not be ready to start their

own business, they can work for somebody else and be saving the money so that they can be more financially prepared to start their business as opposed to going deeply into debt.

Some of the biggest things I see are people going into debt from the very beginning and never saving any money for retirement. I just think it's real important to try and

minimize and avoid debt where you can. And as far as saving for retirement, there's the old saying, "Save early and save often." And I just see too many people getting to 50-55

years of age and they have nothing set aside for retirement, and it's really sad.

CM: And now a SEP IRA is something that can actually help a trainer from a tax standpoint, correct?

BG: Absolutely. If you have a business and you have income, you can start a retirement plan. There are several different kinds and one of the things you need to know about taxes

is whatever you put into the retire plan is income tax deductible. So it's like the IRS is paying you to start a retirement plan. How much money you put into the retirement

plan, all the income on that is tax deferred so you don't even have to pay tax on the interest or dividends or growth of it until you get to retirement age and you take it out.

CM: And then you actually pay for the bracket of the age group you're in; is that correct?

BG: Well you don't pay taxes on it until you take it out when you're in retirement age, and you're usually in a lower tax bracket at that point in time.

Use the search box in the top corner of this site to find content specific to your fitness business and marketing needs