Coach Tax WOD - CrossFit 1836

How was the WOD today?

It's a lot of deadlifts. It looks pretty crappy. I didn't get a chance to do it yet, but it does not look fun.

That's funny. See, ours was— it was a partner WOD. Yeah, 18-minute AMRAP. We did 3 wall balls, 3 kettlebell swings, 3-calorie rows, and then you build on that by 3 each time.

So 3, 6, 9, 12.

Yeah, and he does the— he does the set, I do the set. Yeah, he does the set. So we— me and my partner today, we got, uh, to the 27th round, and it was—

it was—

yeah, it was a lot. I want to die. Yeah, so yeah. All right, so a couple of things we just want to go over real quick. I mean, you know a lot of this, so this is going to be more for your coaches. And so we'll just kind of give some general things, and then if they have specific questions, have them reach out to us, have them shoot us an email, and we can set up a time where we can go over their situation one-on-one.

Okay.

Okay, so the order of what we want to do is we want to start with First, business deductions. Second, entities and having a business. And then third, some specific things that they should be writing off or strategies like corporate rent. We'll talk specifically about that one separately. Okay.

Okay.

Okay. All right. So starting off with deductions. All of your Coaches, while they may not have a business set up, in the eyes of the IRS, if you get 1099, you are considered a business owner. So, think of themselves as business owners. Business owners, one of the benefits of being 1099 is that you get to deduct all of the dollars that you spend generating your money against your income. So, if I make $50,000 and I have $50,000 of business deductions, to the IRS, I actually earned $0. So, that's really the plus side for your Coaches.

Yeah.

That they get to write off those deductions that they otherwise wouldn't. As a W-2 employee, you don't get to write all that crap off. So, that's the benefit. Specific deductions for them. You guys are within the healthcare industry very broadly. And so anything related to health or fitness is going to be deductible. So specific things for health or fitness industry— supplements. Supplements are going to be a big thing. Guarantee all of your coaches are taking some form of supplement, whether that's pre-workout, post-workout, protein, creatine, whatever. They get to write all that off against their income. If they are shopping for specialty foods, If I'm going to the grocery store and I'm walking down the organic food aisle only, then I get to take a percentage of that organic food as a tax deduction. Now, if I'm doing my regular grocery shopping at Walmart and then I'm going to an organic-only store for specialty foods, I wouldn't write off Walmart. I'd write off the organic food store.

Gotcha.

2 things that are never going to be deductible Coaches. One is going to be their rent payment or their mortgage payment for their personal residence or wherever they're living. And the second would be those basic groceries like bread and eggs and milk and items like that. Okay, so that's going to be real specific food items that we would get to write off. They also get to write off all their workout gear. Clothing, shorts, shirts. Weight belts, gloves, tape. I mean, all of that they get to write off. Cell phones, they get to write off. The internet at their homes, they get to write off. Car expenses, they get to write off. So driving to and from the gym or wherever they're coaching, that's deductible. If they're going to meet with— let's say you and one of your coaches is going to go out to lunch.

Mm-hmm.

That driving to and from that lunch meeting is deductible. If you guys are going out to lunch, the meal is deductible. I mean, really, when it comes down to it, if they're spending a dollar and it's somehow related to the gym or to the health and fitness industry, they should probably be writing it off.

Okay.

Okay, so that's gonna be the real kind of general overview and philosophy on deductions. It's related to the business. I want to write it off.

Okay.

Okay, the next thing we're going to do is we're going to have Mitch actually go over entity structures a little bit and how they work and kind of what some of the differences are. So we're probably going to switch and let you— and let you see what's on our screen in a minute. But just as a heads up, that's where we'll go next. So by the way, Matt, I mean, can you anticipate any questions you think your coaches might have about the—

I got one coach trying to link in right now.

Okay. Okay.

Um, I'm trying to get her the information. So I've got a couple coaches that they make a couple hundred bucks a month extra. But then we've got a couple coaches that are, you know, above $1,000 a month, like starting to bring in a little bit of a substantial income, and they can raise that as much as they would like to. So really more for them. Guys that are just making a couple hundred bucks a month, I don't think they're as concerned about it.

Right.

But she's the one that needs the most of this.

Thank you.

Glad she joined.

Okay, good. Well, we're back recording, um, so you can send it to the other Coaches. So Lexi, you are now part of our awesome recording.

Great.

Okay, and you're our favorite.

Thanks.

Recap over just really quickly, which I already went over.

Yep. Yeah, so I'm going to recap. We went over deductions for a few minutes, and Mitch is going to go over entity structure and then a strategy that we really like to implement. So we'll recap deductions. In the IRS's eyes, you're considered a business because you are 1099. So even if you don't have a business set up, you're still a business. So as a business owner, you get to write off every dollar that you spend Generating your money, generating whatever you are getting paid for. So you're in the health and fitness industry, so anything that you're spending related to health and fitness, you should look for as a write-off. 2 things in particular that are not going to be deductible: your rent or your mortgage payments, and then personal basic groceries like bread and eggs and milk.

Okay.

Otherwise, everything could be. Specifically for you, supplements. That's probably gonna be a big one. All your supplements you get to take as a write-off. If you're shopping for specialty foods, again, basic groceries, not deductible. Specialty foods, now we're talking about being deductible. Other deductions, cell phone, the internet at your home, your workout gear, your driving for getting to coaching or coming from coaching. All of those things are— that's what you get to write off as being a business owner. And that's one of the main benefits of being a business owner is you get to write those things off. So if I earned $50,000 in my business and I had $50,000 of expenses, to the IRS I made no money and I'm going to pay no taxes.

Okay.

You follow me?

Following.

Okay. All right. Now I'm going to test you just a little bit. Based on what I just said, what did you understand you could write off as a business deduction?

Workout gear, driving, supplements, specialty items at the grocery store, not milk or eggs or stuff like that.

Okay, good.

Awesome.

You're, you're doing great. Yeah, that was actually pretty good. Okay, 2 things, 2 other ones that you didn't say that I want to make sure because I guarantee everyone has these, is your cell phone and the internet at your home. So those for sure are going to be deductions as well. Okay, so really the question that I would want you to ask yourself is anytime you're spending a dollar, is this somehow related to the health and fitness industry and helping me generate more money? And if the answer is yes, then it counts as a business deduction.

Okay.

If you and Matt go out to eat lunch together to talk about what's happening in the gym, That's a business meal. You write that off as well.

You write off driving there, then you write off the meal, then you write off driving back.

Sounds like we have to go have a lot of meetings, Matt.

You know, I know Matt likes to go to the clubs, so if you go clubbing with Matt— do they have clubs in Texas?

No, sleep clubs.

Rodeos. Okay, all right, so Mitch now is gonna jump over and go over business entities and if it makes sense for you. Can we share that? Yeah, so I'm gonna pull up a document on our screen and then I'm gonna share it so we can kind of watch what's happening here. So hold on just a second. While he does that, Lexi, what's cool about deductions is you're already, you're already paying for them anyway. You know, if you want to buy some new Nanos, you claim it as a business expense, you don't have to pay as much tax.

So that's what it looks like. Texas.

What's that?

Your screensaver looked like Texas.

This?

Yeah, what it looked like for us this morning.

Snow? Yeah, right.

No, I'm serious. You guys there, you have any friends on Facebook that are from Texas, check their Facebook out.

I will, I will. My sister-in-law and brother-in-law live down there.

Oh yeah, snow everywhere.

That's crazy. We have no snow here. No snow here. It's ridiculous. Okay, can you guys see my screen, our screen right now?

Yes.

How to kick your taxes' ass. That's what we like to do. So, okay, Mitch.

Okay.

Ask if you need it.

So having the right entity set up is going to be crucial for you. Okay, so because you're a 1099, like Dustin mentioned, in the eyes of the IRS you're considered self-employed, so you would be there on option 1. And so all that income that comes into you on that 1099, you're going to be subject to about 15% self-employment tax, 15 to 35% of the federal income tax, and then depending on what state you're in, 0 to 10% state tax. So you're really looking at about 30 to 60% tax. If you, you know, stay in that option 1 and don't set up a business. Option 2 here, there we go. You set up a business, an S corporation, you get money out of that 2 ways. So as the officer, Of that company. Let's see, you're gonna get—

let's see, that's the wage. That's the wage. Okay, sorry.

So you have to take a wage out of the S corporation because technically you're also an employee. And just like In option 1, you're going to be subject to those 3 different taxes. But you also, as the owner— and this is the great part— you get to take what are called shareholder distributions. And those are only going to be subject to federal and state tax. So on those, you save, you know, the 15.3%, the self-employment tax. Does that make sense so far?

It's okay to say no.

I don't understand any of this stuff.

Okay, it's a little bit like drinking from a fire hose. I mean, if you get any at all, you're probably doing really good. And the fact that you already got business deductions and the things you'd be writing off, you're seriously heads and tails above a lot of other people. So This is— I mean, this is— there's a lot going on here. Particularly what I would say is, and what we find is, okay, you're going to take your total income that you receive on your 1099. You're going to take all of your business deductions, and if what is left is more than $5,000, you really just need to talk to us and we'll walk you through this entire process. Okay, so right now I think what would be a good thing is I want you to take out a piece of paper and I want to write— I want you to write down how much you spend on your cell phone each year.

I don't pay for my cell phone.

You lucky dog. Life is good.

Life is good.

Okay, how much do you spend on internet?

I don't pay for internet. Nice!

Life is really good for you.

Life is great.

You know, are your parents looking to adopt other children?

Because I'm already— 5 of us.

Oh, okay. Bless them for that.

Um, you guys buy a lot of clothes?

Let's talk about how much you spend. Just write down how much you spend on, on clothes, workout clothes, and how much you spend on supplements.

Okay, like a month kind of thing?

For the year, and just an estimate is fine. So if I'm spending $100 a month average, I'm gonna say I spend $1,200.

Okay, okay, okay.

You did that for clothing and for supplements?

Yes.

Okay. I want you to think about how much you drive.

Okay.

Okay. I want you to try to come up with how many miles you're driving in a year. So, for instance, how far is it from where you live to the gym?

6 minutes on a good day.

Okay, 6 minutes on a good day equates to how many miles, do you think? Maybe 1?

It's probably 5 miles away, 5 or 6 miles.

Okay, let's give you 5 miles. Okay, 10 miles round trip each day. Do you go in— how many days a week do you go in?

Every day.

I would say twice a day, every day.

Yeah. Okay, and that's 5 days a week, 6 days a week, 7 days a week?

6 days.

Okay, so twice, that would be 20 miles each day, 6 days a week, it's 120 miles, 52 weeks a year. I don't have a calculator in front of me, so I'm gonna estimate 5,500 miles. I think we're not too far from that, okay? Your tax deduction for 5,500 miles— just kidding, Ryan does have a calculator, so I'm going to use it— is about $2,900. So I want you to write that in. Okay.

Okay? Yep.

Now I want— what I want you to do is I want you to take how much— how much are you going to make this year, and I want you to write that down, and I want you to deduct The other costs that we just went through out of that.

Hmm, I don't know how much I'm gonna make this here.

Round numbers, you're getting like $1,500 from the gym a month right now, and then whatever you do, uh, everything else.

Okay, okay, so $1,500 a month from the gym. Are you getting income? Oh, you got it, you're doing it.

Okay.

Is what's left more than $5,000?

Yes.

Okay, we need to have a one-on-one discussion then. Okay, and we'll, we'll walk you through this whole Business, no business thing. So for any of the coaches that watch this video, I want you to do that same exercise. Go through the same process of writing down those expenses and totaling them up and taking that— taking your income minus those. And if it's more than $5,000, let us know. If it's less than $5,000, that's okay. You're still considered a business. And there's still some nuances in there. So, I mean, reach out to us and we can help you in terms of taxes. Now, there's going to be one specific deduction for a business owner like you, Lexi, that we want to go over in particular. So I'm going to stop sharing the screen because it doesn't matter so much anymore. And you can see our lovely faces again.

Okay.

So Mitch is going to go over that. It's called corporate rent.

Okay, so if you only remember one thing from this presentation, remember this because it's pretty awesome. It'll help you save thousands of dollars. So, you know, large companies will often rent out like a hotel meeting room, you know, to have like a company meeting or a retreat or something like that. So we took this concept and applied it to the small business owner. See, the IRS has a rule, it's called the 14-day rule, where if you rent out your properties for 14 days or less, it's non-taxable income, meaning you don't have to even report that as income on your taxes. So the way it works is Your business will basically rent your home from you, so that counts as a rent expense to the business and then also non-taxable income to you individually. So it really helps you out, you know, 2 ways. That's how it can help you save thousands.

So Matt, you take advantage of this, right?

Yes.

Okay, good. Does that— how maybe you explain it? We'll have you explain it to Lexi because you've had it for a little bit longer. Explain it to Lexi how you kind of understand it works. We'll make sure, because we talk, we talk accountant and sometimes we're not very clear.

So basically my business rents out My house for a meeting once a month or 14 times in a year. A couple months we may do it twice. Um, and that money is paid to me by me or by my business, and then I in turn do not have to pay taxes on that money, but it still stays mine. Oh, I love it. I pay me rent, I keep it, I don't have to pay rent or tax on it.

Correct?

That is exactly right.

Lexi, your turn.

I don't like all these tests.

Does it— does the concept make some sense to you?

Yes, it does. That, that does make sense.

If Lexi doesn't have her own place, is that still possible?

So great question. Do you live with like roommates?

No, live with my parents.

Are your parents renting out their house?

Yeah.

Okay, technically—

Her mom would love to charge her rent though. I'm sure her mom would love to charge her rent.

Don't bring that up. We are looking at, um, buying a house and Flopping it so then we can rent it out, um, another house. So, okay, maybe.

Again, the strategy works for residents. So right now the house is technically your parents', so your business would pay your parents the rent. So you'd have to work that out kind of on the back end a little bit with your parents. Um, maybe they're gonna start making your car payment for you. Because you're paying them rent. Yeah, I don't know, you'll have to work that out. Um, with the property you talked about, like we're gonna get another property and fix it up and start renting it, we wouldn't use the strategy on that one because number one, you're not living in it as your residence, and 2, you're renting it to other people every single day, so that is already more than the 14 days. So we have to pay tax on it anyways. So we're looking more for somebody like Matt who's not renting his house. He gets to rent his house now, but he rents it to himself— to, well, to his business— and then he doesn't pay tax on it. And so real quick, I want you to look at your number that you wrote down earlier.

Okay.

After we took all of our expenses, you came up with some number. I want you to take $15,000 off of that number.

Okay.

Is it still positive?

No.

Okay, guess what? You're paying no taxes. That's right. Okay, so that is literally That's the awesomeness of that strategy is we took money that you were gonna pay tax on and probably somewhere between 10% to 15% of that number and we just wiped away that tax. So every individual is different as to whether it makes sense to run the business or not. Again, without knowing your exact numbers, which I wanna— we wanna jump on a call and and discuss those with you.

Quick backstory just on Lexi. Like, she's been part of our gym for a long time. And then did you start like this summer maybe?

Working?

Yeah.

Yes, August.

August, she started working with us. So like a lot of these things will benefit her, I think, greatly down the line. But as of right now, she's just building up what she's doing, running classes. And but there's a lot of extra things that she can be doing to keep building her income up through the gym. So it's kind of just getting started. I'd like to see her get a big head start on all this so she doesn't go through the crap we went through when we started.

Sure. Well, that's great. That's awesome, Lexi. And so yeah, as you, as you grow and as you make more and more money, Makes more and more sense to have that business and do some of the other things. So what we'll do is, if you can, there should be a chat box that you can access, right?

Yes.

Little chat. I want you to put your— if you could put your email in the chat box. What we'll do is we'll shoot you an email and we'll get a time set up where we can talk one-on-one specifics about your situation. And what we want to do so that you can continue to save taxes going forward.

Okay.

I have one other coach that would probably kind of fit the same scenario as her. She also does some other 1099 stuff. So she has 2 sources of income coming in the same way. Can we just throw her email in there or something as well?

Yeah, if you want to throw her email in, that would be great. And then, Matt, you probably know that, so throw that in and we'll reach out to her. Just give her a heads up. We'll get you this video, Matt, so you can get it out to your coaches.

Okay.

And then any of them will reach out to Robin and Lexi. We'll reach out to you 2 particularly, but any of your other coaches that want to chat, just have them reach out to us.

Okay, will do. And I should have my preliminary end-of-the-year stuff to you soon, so.

Okay, that'd be awesome.

We can talk.

Okay, Lexi, how were the deadlifts today?

I did not do them. What? Matt didn't either.

I already admitted I didn't do it.

Not yet, 4:30.

One of the things—

the best way to stop working out is to work at a gym.

Yeah, is that what we need to do?

Yeah, you're here all day and it's like, oh, I'm done.

Our gym this month has done something called the Burpee Challenge.

Oh yeah?

Every day you do 2 minutes of burpees and it's just max effort. And the goal is that hopefully by the end of the month we can do more burpees, but I hate every single second of burpees.

What is this for?

So yeah, you know what we're talking about, right, Lexi?

Yeah, burpees are no fun, but I like them.

You like burpees? You like this one? Yeah, it's a sport. You're one of those good people that's, that's real efficient at them.

Yeah, I am. That is one of my strong movements.

Well, um, thanks for sharing that. We can't really work with you anymore. I'm just teasing. Okay, so we'll go ahead and we'll reach out to you, Lexi, and we'll get something set up. And between now and when we have that discussion, if you have questions like things that we kind of talked about, or like, I'm going to spend money on this, is that deductible? Write them down and we can make sure to rip through those when we have our call.

Okay, she's awesome with like spreadsheets and keeping track of shit and staying organized. Um, should she like just— is there a better way for like Like, should she keep receipts? Should she be writing everything down that she's buying? Um, like, should she be proactive or reactive and go back and like look at everything that she's been doing and like start getting all that together?

Or— Yes, and yes, and yes. I think you asked 3 questions there.

She's way better at that stuff than any of us, so it's kind of one reason she's here.

Yeah, so that— I mean, that's going to be more specific to each individual as to exactly how that happens and what the form and function, how you come to that. And so, but the answer is yeah, for the most part you want to track all that information. If you track it in a spreadsheet, great. If you use the software, great. There'll be some difference— differences and nuances depending upon if a business is required. But that's again where everybody's a little bit different. And so when we talk to your coaches individually, we'll make sure to go over those things.

Okay. Wouldn't hurt to have too much information ready though, huh? Yeah.

Hang on to that. Yeah. So we've got a spreadsheet too that we can send you, Lexi. It just automates everything. So you put in your expenses for the month and then it categorizes— it's got categories and adds them up for you.

I love categories and spreadsheets. Yeah.

We can send that to you.

Are you sure you aren't an accountant at heart then?

I might convert her.

I doubt that, let's be honest. Part of me wishes I was just a CrossFit coach. Seriously, my heart part. So, um, I'm tired of sitting behind a desk all day. So yeah, okay, all right, well, we'll, we'll reach out to Lexi and Robin. Matt, get this to your other coaches. If they have questions, reach out to us and Thank you guys. Thanks. Good to meet you, Lexi. We'll be in touch.

Hi, nice to meet you.

See ya.

Now we gotta figure out how to get out of here.