TAX 101 FOR PERSONAL TRAINERS

Keeping track of income, expenses and learning to pay tax does not come easy to everyone. We’re here to give you some of our top tips to get tax savvy and potentially save yourself from getting in debt with IRD or worse yet, prosecuted for tax evasion! In my seven years as a PT, I have done plenty of tax returns but also made a few mistakes along the way. Luckily now, there are simple and cost-effective programs, apps and accountants that you can utilise to take the pressure off yourself if maths was never your thing!

My biggest tip is: if in doubt, refer out. If you feel unsure of what to do with your taxes, seek help from a registered accountant. You can find one in your local area via the link in the references below (Chartered Accountants ). Even a simple 30 minute chat may set you up for the year. This along with good software can reduce the time needed to sort your tax each month. The biggest mistake you can make is too bury your head in the sand and ‘sort it out later’, this could lead to you over spending throughout the year and not having the finances to pay your tax once your return is filed.

Typically, personal trainers are acting as sole traders or contractors so the advice given is based upon this. If you are an employee of a fitness company you will be on salary/ wages and your tax will be completed for you. If you are in a partnership or have your own company, the rules differ again so I would suggest getting on touch with an accountant or the IRD for more information.

Let’s start with the basics!

The NZ financial year runs from April 1st to March 31st each year. One of the many tax misconceptions is that your first year of business is tax-free. This is not the case. Typically, tax from any income earnt in your first year of business is due by the 7th February the following year (IRD, Paying tax in your first year of business). After your first year of business when you’re filing your first return, if you have a net profit you must pay tax on this. If you make voluntary payments during your first year of business before you file your return, you qualify for an early payment discount of 6.7%. This means it is well worth paying the tax money you put aside directly to IRD in your first year. It is important to note that this is only for your first year of business.

After your first year of business, you may also have to pay provisional tax which can mean you are paying your first year’s tax bill at the same time as your provisional tax is due. Provisional tax is income tax you pay during the year, helping you ‘spread the load’ and avoid a big end-of-year bill (IRD, Provisional tax ). You will pay provisional tax in your second year of business if your RIT (tax bill after expenses and tax credits) is more than $2,500. There are four different ways of working out how to pay provisional tax so it is best to speak with an accountant or the IRD about these but in general, an estimate of your following year’s earnings will be split into multiple payments throughout the year. This is easier for businesses to pay than one lump sum at the end of the financial year. For more information on provision tax see the IRD handout in the references. (IRD, Provisional tax)

Sole traders / contractors

As a sole trader/ contractor you will operate under your personal IRD number. If you currently have had a job, you will already have an IRD number and if not you can apply to the IRD for one. You will need to file an IR3 at the end of the financial year and keep track of your income and expenses throughout the year. To keep track of your expenses you could hire an accountant, use your own manual cashbook, a computer software such as Xero or MYOB or a combination of these.

To keep costs low, you can use a computer software to do the majority of the work yourself and pay an accountant at the end of the year to file the return and complete the more complicated aspects of a return for you. Whatever option you chose you must keep track of your income and expenses. Unless you use an accountant or have an extension, you must file your IR3 by July 7th of that tax year e.g. 1 April 2021 – 31st March 2022, an IR3 would be due July 7th 2022.

Income

Income can come from any clients you train, invoices you charge for companies, cash payments from clients (yes, you have to pay for these too) or product you may be selling e.g. merchandise or supplements. Once you earn over $200 per year from any untaxed income, you must file an IR3 tax return to declare this. Do not fall into traps such as taking cash payments and not declaring these as the IRD are not silly. Our industry is highly regulated and if they think something looks off, you may be investigated. You’re better to be safe than prosecuted.

Expenses

Businesses get taxed on their income minus any business expenses and other deductions. (IRD, Types of business expenses)

The type of expenses you can claim for depends on what industry you work in but generally within the fitness industry you can claim for:

Gym rent
Uniform costs
Entertainment expenses such as client meetings
Travel/ vehicle expenses
Home office use – including a portion of rent, power, internet and phone bills
Gym equipment
REPS or insurance
Ongoing professional development
Stationary
Accountants
Website/ advertising fee

Some expenses cannot be claimed for in full so before you claim, be sure to look into these. Again I would recommend you chat to an accountant who will be able to guide you on this. To claim for these expenses, you must keep all receipts, invoices and credit/debit card statements. All business records must be kept for seven years.

GST

If your turnover or income before expenses is more than $60,000 then you must register for GST. You must also register if you estimate you are going to earn more than $60,000 in the next 12 months. GST is a tax added to the price of most goods and services, including imports. (IRD, What is GST ) Most PT’s will take at least one-three years to get to this level of turnover but do keep an eye on how much you are bringing into the business to ensure you register when needed. The current GST rate is 15% (2021) so once you are registered you will need to pay 15% of your turnover back to the IRD, it is recommended that you put money aside from each week’s earnings to ensure you have enough to do so.

Set up some bank accounts

One simple way of keeping a good record of what you earn is to open two bank accounts, these can just be separate accounts with your personal bank but name these to ensure you don’t get mixed up with your personal accounts.

Set one account up as a ‘business spending account’ this is where your clients will pay you and you deposit your cash payments into and the second as a ‘tax savings account.’ If you are paying for expenses, use your spending account. Avoid using this to purchase non-business-related items. You can transfer out of this account to pay yourself and code this as ‘personal drawings’ so the two accounts do not get confused.

Having two separate accounts allows you to link both your business spending and savings accounts to a software such as Xero or MYOB. This way you can easily keep track of your income, expenses and code these for your accountant as you go each month. Doing this may also reduce what your accountant will charge you. Both systems have excellent graphs and tools you can use to monitor your turnover, profit and loss and compare certain years or months to previous periods.

Put some money aside each week

It is recommended that each week you work out how much you earnt and put a percentage into your tax savings account to ensure you have enough at the end of the year for your tax bill, student loan repayments and GST (if registered). This percentage rate varies so seek professional advice on this. It should be worked out from your income before expenses. The following is a rough guideline:

15% of earnings if you do not have a student loan
25% of earnings if you do have a student loan
30% of earnings if you do not have a student loan but are GST registered
35% of earnings if you have a student loan and are GST registered

Trust me when I say, you are better off to have saved too much throughout the year and be able to use this to reinvest into your business than to have a bigger bill than expected and not be trying to pay this off but provisional tax at the same time!

Learning the tax basics, when to file, how much to save and what you can and can’t claim for is a great idea before you start your business. It can be implemented at any time, although the sooner the better. Not following tax obligations in NZ is considered a serious crime and can come with serious financial punishments or worse yet, imprisonment so it is not something to muck around with. As mentioned several times in their article, I do recommend seeking advice from a registered accountant before you start running your PT business as they can give you simple advice and tips for success!