When you’re in the middle of a coaching session, you feel amazing. But when it’s time to catch up on the administrative side of your business — like business taxes — that’s when you get tripped up.
Yes, life coaches must pay taxes like everyone else — but how does it work, and how can you apply tax deductions? You may be wondering, what can I write off?
Take a deep breath, relax, and continue reading to get clarity on everything you need to know about tax deductions for life coaches!
You can use the tax deduction cheat sheet at the bottom of this post to make it way easier to manage your tax bill!
Disclaimer: This post serves informational purposes only. It is not intended to provide tax, legal, or accounting advice. Please consult with an accountant or tax lawyer to get custom advice for your situation.
What is a Tax Deduction?
So what exactly is a tax write-off (or tax deduction) in the first place, and why do life coaches need to know about them?
You need to pay taxes on the revenue from your coaching business. You’ll pay different amounts depending on which state you’re in — and you’ll pay the same percentage for federal income tax no matter your home state.
But you only pay tax on your taxable income, not all the money you make! Imagine if you just started a coaching business and made $20,000 — but spent $18,000 on startup costs. You’d have to pay more taxes than your business even generated if you had to pay taxes on your entire gross income.
Tax deductions are expenses you use to reduce your taxable income. When you run a business, most business expenses can be used as a tax write-off. This means you only pay tax on the profit your business makes.
Types of tax deductions coaches need to know about
There are two types of tax deductions you need to know about as a coach: standard deductions and itemized deductions.
Standard deductions are a specific amount of money you can write off. If you choose to write off the standard deduction, you get that specific amount and nothing else.
The standard deduction can vary each year and depends on your circumstances. For example, in 2023, here are the standard deductions for three different scenarios:
- Single filers and spouses filing separately: $12,900
- Married people filing jointly: $25,900
- Heads of Household: $19,400
Deductible expenses from your tax bill include any individual business expenses that you, your bookkeeper, or tax advisor itemized in your system in addition to any other eligible expenses. Instead of lowering your taxable income by a fixed amount, they reduce it by the total of all eligible expenses.
Some common expenses self-employed individuals use to reduce their tax deductible include:
- Office expenses and office supplies
- Recurring expenses like website hosting or software fees (yes, you can write off your Paperbell subscription!)
- Legal fees and professional fees
- Parts of utilities and rent if you work from a home office
- local phone service (if you use a separate phone line for business calls from your home office)
For example, let’s say you made $90,000 from your coaching services last year. When you add up all your eligible expenses, you get a total of $15,000. Using these itemized deductions, you could lower the tax-deductible amount to $75,000.
If you’re filing separately (and not as a head of household), you’d be better off using itemized deductions in the above scenario. However, if you had only spent $5,000 on your business, you’d be better off taking the $12,900 standard deduction for single filers.
10 Interesting Categories for Tax Write-offs for Self-employed Coaches
Apart from the standard itemized deductions, self-employed coaches can claim deductions and use a variety of interesting tax write-offs and reduce the tax deductible from their income. Take a look at these ideas to save money and take more of your income home!
1. Coaching business startup costs
Have you just started your coaching business? If so, some of your costs may be qualified business income deductions from your taxable income!
Keep in mind that this deduction is only applicable to businesses that have $55,000 or less in startup costs. But most coaches who operate online fall safely under this threshold.
So how much can you deduct from your gross income in business-related expenses? If you’re in your first year of business, you can deduct up to $5,000 for starting your business— and another $5,000 in organizational costs.
However, you’ll get smaller deductions if you’ve invested over $50,000 in startup costs. So if you spent a total of $52,000, you would only be allowed to have a deduction of $3,000 instead of $5,000.
You’ll get no deductions if you’ve spent over $55,000 in startup costs.
But there’s a difference between “startup costs” and how much you spent in your first year of business. For example, if you had to purchase a new computer and desk, those count as startup costs. But you wouldn’t count your monthly advertising expenses, even if you’re using advertising to “start” your coaching business and land your first client.
2. Self-employment tax
In addition to your income tax, you’ll also need to pay a self-employment tax if you run a life coaching business. Self-employed individuals will pay a rate of 12.4% of their net earnings for social security and 2.9% for Medicare.
But did you know that you can write off half of your self-employment tax to reduce your taxable income? If you don’t take this step, it’ll be like you’re paying taxes twice.
With that said, you need to ensure your IRS Form 1099-NEC/MISC matches your total self-employment income before you start subtracting deductions. Otherwise, you could get audited.
3. Coaching business insurance
For example, the insurance premiums you pay for your liability insurance are a qualified business income deduction. If you hire someone and pay employee health insurance, that counts too!
Plus, if you cover the property from which you work, you can deduct those premiums as well.
4. Advertising and marketing
There are several low-spend and no-spend ways to get coaching clients fast. But it’s also possible to invest some funds in advertising and marketing to speed up your progress.
In both cases, you can deduct your expenses as advertising costs. Other examples of eligible advertising and marketing expenses include but aren’t limited to:
- Logo creation and design
- Website development
- Designing and printing business cards
- Any paid advertising
- Pitch deck design and development
Don’t be tempted to spend too much on advertising and marketing just because it’s a write-off, however. It’s important to take mitigated risks and validate your offers before you invest too much.
5. Educational content
You can write off business services, but you can also write off educational content and training.
Yes, that means you can hire a business coach or enroll in a business course online and write it off as a business expense to help reduce your taxes!
However, not all education is fair game. The courses or training programs you take must help you develop new skills and certifications relevant to your business.
This means any new coaching certifications would count. But that new pottery class you want to take up in the evenings can’t be written off — unless you intend to start selling your creations.
Online courses and certifications aren’t the only type of education you can deduct. You can also write off business books and other paid educational materials.
If you have a virtual assistant working with you, any educational costs to help train them are deductible, too.
6. Contributions you make to your retirement funds
Are you using part of your income to save for the future? If so, some of these contributions may be eligible for a tax write-off.
The amount you’re allowed to contribute with a write-off will depend on your retirement plan — which will vary depending on your age and other factors. You can consult the IRS’ page on this topic to make your own calculations.
In most cases, you’ll need to pay income taxes when you retrieve these funds during retirement. But because many retired people live on a lower income, you’ll also be in a lower tax bracket — which will help you reduce your total tax payments in your lifetime.
7. Travel expenses
Are you traveling to attend a coaching conference or visit a client in person? Did you know you can deduct expenses related to business travel and any expenses you incur during these types of trips?
For example, you can write off the following expenses and more:
- Hotels and other lodgings
- Gas expenses
- Airfare (or other means of long-distance travel)
- Business meals
- Vehicle expenses
For a trip to count as a business trip according to the IRS, you need to travel specifically for your business. You also need to travel outside of your home at least overnight.
As a general rule, you can deduct 50% of the costs of meals and entertainment as expenses related to your coaching business. So if you take a client out for an in-person meeting, you can pay and deduct the cost as an expense.
8. Professional services
Do you hire someone to help you run your business smoothly, like a tax advisor, lawyer, or accountant? These costs are easy tax write-offs. Make sure you get proper invoices from those you hire for professional services.
9. Health insurance and medical expenses
You can deduct your health insurance premiums and any medical expenses as non-taxable costs. These expenses included insurance plans, dental care, and any long-term care insurance you pay for yourself or your spouse and dependents.
10. Home office deductions
Do you work from home, and pay your electricity, Wifi, and water bills? If you run your business from home, you can deduct part of your rent or mortgage and utilities as self-employment write-offs. And don’t forget those office supplies!
To claim these as expenses, you will need proof of what you paid, but don’t forget that you can submit these costs.
Tax Deduction Cheat Sheet for Life Coaches
Let’s face it — we’ve just discussed a ton of confusing terms you may not be familiar with. Below is your fast-access tax write-off cheat sheet to help you remember the important terms once tax season rolls around! This should make your tax filing process much less stressful and help you identify which tax credits you are eligible for.
Remember that you could be eligible for tax credits if you are in any of the below situations.
Above-the-line deductions: These are the deductions the IRS allows you to make on your annual gross income to reduce your taxable income.
Estimated taxes: As a self-employed coach or business owner, you can file quarterly taxes instead of paying in one lump sum. Estimated taxes are the estimated amount you’ll make throughout each quarter.
FSA/HSA: Non-taxable spending accounts you can use to pay for healthcare expenses.
Federal income tax: A percentage of your taxable income you need to pay towards the federal level, regardless of which state you live in.
State income tax: A percentage of your taxable income you’ll need to pay towards your state. Not all states have a state tax.
Electric vehicle tax credit: If you purchased an electric vehicle, you may be eligible for a tax credit.
Child tax credit: If you had a child in the past year, you may be eligible for a tax credit.
Adoption credit: If you adopted a child in the past year, you may qualify for a tax credit.
Year-to-date taxable income: How much have you generated from the beginning of this year to this date?
Capital losses: If you have a capital asset that decreases in value, you’ll experience a capital loss when you sell it for less than what you purchased it for. These property taxes can be deducted from your tax bill.
Charitable contributions: Have you or your coaching business made contributions to a charity? You can count these as deductible expenses.
LLC: Short for Limited Liability Company. You can choose to be taxed as a corporation or as a partnership.
Corporation: Corporations have a completely separate taxable entity from their owners or shareholders.
W-2 form: As a self-employed coach, you won’t receive a W-2 form. These forms are only for employees on a payroll. If you’ve done contract work for another business, you’ll receive earnings statements on a 1099-NEC form instead.
1099-NEC form: This form is for nonemployee compensation. You’ll receive this to report your compensation if you did coaching or consulting work for another company. The 1099 tax write-off list is the same as everything mentioned in the self-employed deduction cheat sheet.
Save on Taxes for Your Life Coaching Business
Keeping your business organized to make tax season a breeze is easier said than done. Sometimes life gets on top of you, and you can’t find all the invoices you need when tax season comes around.
If you keep the above tax deduction cheat sheet handy, you can keep the home business tax write-offs in mind, so you remember to save all your expense receipts and invoices!
Paperbell makes it much easier to keep client invoicing, communication, and booking all in one place! With Paperbell, you won’t have to scrabble around at tax season looking for all the right paperwork!
Disclaimer: This post isn’t written by a tax professional; it’s here for information purposes only. If you are unsure about any of the rules, check with a tax professional.