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 taxes — that’s when you get tripped up.
Yes, life coaches must be taxes like everyone else — but how does it work, and how can you apply tax deductions? What even counts as a deduction?
Take a deep breath, relax, and continue reading to get clarity on everything you need to know about tax deductions for life coaches!
What is a Tax Deduction?
So what 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 taxes 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 taxes 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 and itemized deductions.
A standard deduction is 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 2022, 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
Itemized deductions include any individual business expenses that you or your bookkeeper itemized in your system in addition to any other eligible expenses. Instead of lowering your taxable income by a fixed amount, they lower it by the total of all eligible expenses.
Some common expenses self-employed coaches use to reduce their taxable income include:
- Supplies you need for your office
- 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 home
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 your taxable income 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.
7 Interesting Tax Write-offs for Self-employed Coaches
Apart from the standard itemized deductions, self-employed coaches can use a variety of interesting tax write-offs and reduce their taxable income. Take a look at these ideas to take more of your income home!
1. Coaching business startup costs
Have you just started your coaching business? If so, you may be eligible to deduct some of your startup costs 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? If you’re in your first year of business, you can deduct up to $5,000 in startup costs — 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 in startup costs, 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 as a startup cost, 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. You’ll pay a rate of 12.4% of your 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
As a life coach, it’s important to consider getting insurance. Any business insurance that you get to run your coaching business safely can be deducted from your taxable income.
For example, you can deduct the premiums you pay for your liability insurance. 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.
For example, you can start running Facebook ads, or you can hire someone to run your social media marketing campaigns.
In both cases, you can deduct your expenses. 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 off those expenses 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? You can write off most travel 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
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.
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 cheat sheet to help you remember the important terms once tax season rolls around!
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 an income 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 can be deducted from your taxable income.
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.
Save on Taxes for Your Life Coaching Business
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