Accounting Tips for Yoga Teachers: Tax Benefits Associated with Being an Independent Contractor
Thus, for example, a yoga teacher who brings his or her own props, travels from studio to studio, pays his or her own travel and other business expenses, and is paid on an hourly or per-class basis according to his or her own constantly changing schedule, would likely be considered an independent contractor. On the other hand, Studio X's "master teacher," who fills regular classes, teaches them in the manner prescribed by the studio, relies on the studio's props, is slated to teach a particular style of yoga for a lengthy (i.e., a year) or indefinite period, meets with the studio owner regularly to provide feedback on progress, and is considered an integral part of the studio's daily operations, would likely be considered an employee of that studio.
Yoga teachers should understand these distinctions, because even if the contract between studio and teacher specifies that the yoga teacher is an "employee" or "independent contractor," the IRS will look beyond the words of the contract to the actual arrangement. As for yoga studios, an employer that misclassifies an employee as an independent contractor may be held liable for employment taxes for that worker, plus a penalty.
The Tax Breaks
As an independent contractor, you can deduct from your taxable income any necessary expenses related to your business. According to the IRS, a "business expense," to be deductible, must be "both ordinary and necessary." An "ordinary expense" is one that is common and accepted in your industry. A "necessary expense" is one that is helpful and appropriate for your trade or business. For example, if you use wood or foam blocks as props, the cost of these props would likely qualify as a deductible business expense; so too would your yoga mat, folding chairs, blankets, and straps.
Here are some major categories of potentially deductible business expenses:
Additional business expenses, such as dues and publications, would probably qualify for deduction (for example, your Yoga Journal subscription can likely be deducted). Offices expenses and expenses for legal and professional services (including professional liability insurance) also should be deductible business expenses. On the other hand, fancy yoga outfits and other items of clothing generally are not deductible. In sum, the tax advantages available to independent contractors are considerable. In addition, independent contractors set their own wages and therefore may earn more than they would as employees.
Be sure to consult an accountant or tax attorney at tax time to discuss your unique deductions and to address nested exceptions within IRS rules.
Michael H. Cohen, J.D., M.B.A. is Principal in the Law Offices of Michael H. Cohen and the publisher of the Complementary and Alternative Medicine Law Blog (www.camlawblog.com). The materials in this website/e-newsletter have been prepared by Michael H. Cohen, J.D., M.B.A., and Yoga Journal for informational purposes only and are not legal opinion or advice. Online readers should not act upon this information without seeking professional legal counsel.
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