Tax WOD - CrossFit Turbine

All right, let's go ahead and get started then. I'm Mitch.

I'm Dustin.

Hi Dustin, hi Mitch.

Hi. So we got Katie, Greg, Adam, and I'm sorry I didn't catch your name.

Jamie.

Jamie.

Okay, okay, great, cool.

All right, so we'll go ahead and get started then. Just to kind of go over the outline a little bit, I'm going to go over as far as expenses and what kind of you should be tracking for expenses as coaches.

Mm-hmm.

And Dustin will go over just kind of the entity structure and how it kind of affects you tax-wise. And then lastly, I'll go over a strategy that we like to call corporate rent. That's a tax strategy that we like to use You know, to help you guys save additional money. So are any of you guys 1099 employees or contractors?

Jamie is right now.

Jamie is? Okay.

Yep.

Adam and Gray— well, Adam and Katie are owners.

Yep.

Oh, okay, cool.

Gray is a quasi-owner.

That's his actual title.

I'm just messing around.

Claudio.

I like it. Okay, and you're Katie's husband, is that right? Correct, yes.

Okay, cool. Live-in boyfriend, whatever you want to call it, it's cool.

Boy toy.

Boy toy, there we go. Thanks, Adam. That's what I was looking for. I'm blushing under this beard.

Cool. All right, so whether you guys have a business set up or not, as a 1099 contractor, you guys are going to be taxed as a business in the eyes of the IRS. Do you guys have businesses set up?

Yeah, the business is set up.

Yeah, so they're all part of Pure Vine. What about you, Jamie? Do you have a business?

No?

Okay, okay, okay.

And what, what type of coaching do you usually do, Jamie? Do you do like the WODs or nutrition?

Um, I do like group classes and personal training.

Okay, cool. So mostly like the group WODs then?

Yeah, and then some kids stuff too.

Yeah, CrossFit Kids.

Oh cool, okay.

How's that? Do you like coaching kids? Because I think about my kids coming to CrossFit and it would just be—

It's very trying at times, but it's worth it.

Cool.

All right, so let's get into expenses. So as CrossFit coaches, you guys have to, you know, kind of keep up a certain appearance. You know, nobody's gonna want to Learn CrossFit from somebody that looks like, you know, they've been living in a van down by the river. All your workout gear, you know, that counts as a business expense for you. You know, your Reebok Nanos, your workout shorts, workout shirts.

Alaska's hot down there.

Sorry, what? What, Adam?

Sweatshirts.

They make fun of my sweatshirt.

Sweatshirts that say Alaska on them? Yeah, whatever you want to work out in.

I mean, that did look like it came down from a van by the river.

It really does. And then supplements is another big one, you know, like pre-workout, post-workout. Protein, protein bars, that kind of thing.

Yeah.

That's yet another business deduction you can take as a CrossFit coach. Also, like your cell phone. The box owner, I'm sure, has to, you know, get in touch with you outside of work when you're not at the box. So you can take your entire monthly cell phone costs As a business expense as well. And then also internet. I'm sure you guys, you know, use the internet for work, maybe when you're at home a little bit.

Absolutely.

That entire expense.

Let's see.

Oh, another big one is kind of specialty foods. For CrossFit coaches, if you're going to say like Whole Foods or, you know, an all-natural store, something like that, you can go ahead and deduct those.

So that's like, that's like only if you're like going to a— like, what would you consider a specialty? Like, it has to say like natural foods? Like, how is— how are they going to qualify that?

So just your typical groceries like that you can just get at Like Walmart, you know, like milk, bread, eggs, that kind of thing. Those would be considered personal groceries.

Okay.

But yeah, going to like Whole Foods for organic fruits and vegetables, meats, that kind of thing. That stuff is, you know, unique, you know, to your appearance as CrossFit coaches. So yeah, that's the kind of stuff you want to deduct.

So we have like a paleo food deduction. Delivery place that we can order pre-made meals from and stuff like that you're talking about? That would be better.

Yeah, for sure. Yep. Anything related to, yeah, organic, paleo, that kind of thing.

We'll only just make fun of you when you start looking like a caveman. Wait a second.

Also your CrossFit certifications. I know those aren't cheap. They're what, like $1,000?

Yeah.

Those as well you want to track. And also travel, like if you have any personal travel planned, like say you want to take your kids to Disneyland, one thing you can do, as long as you have kind of a business purpose in mind before, like maybe you want to go research the CrossFit boxes in the area, You can go ahead and take that as well, the entire travel expense, like your plane tickets, car rental, Disneyland tickets, all that.

Dang.

Do you guys have any questions so far?

I don't think so.

Where should we go market research?

That's a good question. That's the answer you should be asking yourself. Okay, Jamie, I know that these other people basically already do a lot of this, so you're kind of the one that we're looking for specifically for questions. Oh gosh.

Oh gosh.

If you feel like you're taking a drink from a fire hose, it's okay. There's a lot, there's a lot with taxes. And it's okay to feel a little bit overwhelmed. I mean, the, the thing that I would say is don't stress about it too much. I mean, we'll— we're here to help, so if you have questions, we can answer them. But like, has anything of what Mitch said sparked any questions for you? Um, not—

I mean, like, so I'm coming from the standpoint of like, my mom still helps me with my taxes.

That's great.

So I mean, like you said, this is all pretty new to me, so I'm sure questions will pop up as we go through it all. But I mean, it's good info so far. I didn't even realize all that stuff can be, you know, written off and all that. So I'll think about it.

Okay, so if you have questions as we keep going, just, just pipe in. Greg, are you 1099 or do you just get your income from Katie?

Oh no, he's, uh, he's W-2.

Oh, okay, okay. All right, but Jamie's 1099, right?

Correct.

Okay, all right, so let's see.

So just kind of our— just to kind of cap it off, the general philosophy is, you know, if you're spending a dollar, is it related to your business somehow? Is it helping your business bring in any more, any more revenue, really any more money, income?

And so if the answer is yes to that, you should be writing it off. So we're going to jump really quick to— I'm going to show you something on my screen. So we're going to go over entity structure a little bit. Matters less for Katie and Adam and Greg, more for you, Jamie. So Let me get this working. Okay, we're not artists, just take that into account as you look at this. Make fun of us too bad.

Looks great.

1099 income, or if you're any sort of a business owner, that's going to be this diagram on the left. So specifically you, Jamie, when money's coming to you that you're considered self-employed in any 1099, you're going to pay self-employment tax, and that's on top of your income tax. And so on a— on this example, $50,000 of income, $10,000 of expenses. Your self-employment tax alone is $4,600. Your income tax is probably at least another $4,600 to $8,000 depending upon how much money you're making. So it can be pretty brutal taking income directly to you as an individual, especially once you get over a certain threshold. So I guess I should have prefaced this part with, do you enjoy paying taxes?

No.

Okay, good answer. We're a good fit for you then. I don't know if I've told Katie or Adam or if you guys have heard this. My top 3 hated people: 1, the IRS; 2, Satan; 3, mortgage underwriters. And I'm not sure, they might all be the same person. I'm still trying to figure it out. So we just hate all of them. And so again, mostly we just hate paying tax to the IRS. So section 1, this is how you're currently being taxed. Okay? So the way that we can mitigate taxes or minimize them is the diagram on the right side. The way that that works is when you set up a business and the money runs through your business, it's technically not subject to the self-employment tax at all. So the IRS knows this and they make the person who's running the day-to-day operations of a business take a W-2 wage. That wage is still subject to self-employment income tax, but the rest of the money is spent to— or is given to the owner as draws. Draws are not subject to self-employment tax, only to federal income tax. So just by setting up a business at these income numbers, you'd save $3,200 in tax just by setting up the business. So it's When it comes down to it, the real question behind the business is, can we save money? Can we save more than it's going to cost to take care of it? So what I, what I want you to do as we keep going is I want you to write down how much you're going to make this year on your 1099-J. If you don't know that answer, ask Adam. He probably knows, or Katie.

I can get you that number, Jamie.

Okay.

And then out of that, I want you to take out those costs that Mitch talked about— telephone, internet, supplements, workout gear, anything like that. And if that number, if the number that is left at the end is $5,000 or more, let's have a, let's have a one-on-one discussion. Okay, okay, questions about this?

Makes sense.

Okay, all right, great. So, um, last thing, last thing really quick is just, um, corporate rent, this deduction that we really like.

Can we share that?

Oh yeah.

We're gonna screen share again.

Okay, okay, there we go. So like Dustin mentioned, this is a concept called corporate rent. If you only get one thing out of this presentation today, this is it. You want to pay attention because this can really help you save thousands of dollars. So you know how Big businesses will oftentimes rent out like a room at a hotel for like a monthly meeting. Well, we took that concept and we applied it to the small business. So the way it works is the business will rent your home from you for like a monthly meeting.

Okay.

So the reason this works is that the IRS has what's called the 14-day rule. Which states that if you rent out your home for 14 days or less, you actually don't even have to report that income. You don't even have to put it on your tax return. So the business rents the home from you and it counts as a business expense to the business. And then it's also basically free money to you personally.

So I think we've talked about that before, right, Katie?

Yes.

That makes sense to Greg and Adam and Jamie?

Yes.

Yep, totally.

Um, one quick question on that. Can you only do that 12 times in a year? Can the business only show that corporate rent is being spent 12 times a year? What if you would like to—

So we recommend, yeah, once a month because you want to show like a nice steady, you know, monthly payment that will create that paper trail, you know, if the IRS have any questions.

Okay, so in your guys's scenario in particular, in particular, you Good English, Justin. Adam has— Adam has a residence and you guys have a residence. So Turbine itself could pay Adam rent once a month to have a meeting at his house, and it could pay the Gaimans once a month for having a meeting at their house. So the, the 12— the 12 times a year is per home, not per business.

Oh.

So we could do— so we could do one at each of our houses per month?

Yep. So Jamie, if you set up a business, your business would rent your living space from you and it would pay you rent and it would take the deduction on your business return. Set up—

if she set up like an LLC and that's who we pay, that's our contract, can we pay her as a contractor if she's an LLC and then she could get paid corporate rent, or no?

Potentially. So the simple answer is we hope so.

Oh, okay.

The longer— the longer answer is it depends on the numbers that Jamie comes up with. Because if it makes sense and there's tax savings involved with it, because when you have the business, there's going to be other costs. You have to file a business tax return now.

Right, right, right.

You might have to do—

and there's just— so if, if it's costing me the same amount to do those things as I'm saving in tax, yeah, might as well not go through the headache.

Gotcha. Okay.

I'm saving Like in that example before, if I'm saving $3,000, yeah, it's worth it to do that. You know, my increased costs maybe are $1,000. Well, I'm trading $1,000 to save $3,000. To me, that makes sense.

Mm-hmm.

Okay.

Gotcha. This only works if you have the separate business along with the separate business account.

Right, okay.

Transfer from the business to personal.

Okay.

Okay.

Sounds good.

Fire hose turned off. Okay, now comes question time.

All right.

And if I can start, let me put Jamie on the spot. Jamie, can you explain to us what corporate— how that corporate rent strategy Something about renting a house. You want to fix that? I was gonna add— Okay.

Check for understanding.

Okay, well, we'll throw the question to Adam.

Yeah, so the business pays you individually for renting your space once a month. At that set number, the $1,250, and that way it can be— all that money is free income for you.

Very simple. Good synopsis. So works out to be $15,000 a year. So if you want $15,000 a year that you never pay tax on, and that's every— well, not Greg and Katie, you're considered one because I would assume you live in the same house, but so each the 3 groups of you Could each take $15,000 without paying any tax.

Got it.

Good.

Yeah.

Okay, other questions? Jamie, we're coming back to you.

Um, I don't have any questions.

I feel like that computer is really distracting.

I was just taking notes.

Oh yeah.

I can't do it.

So what do you recommend the best, like the best way for her or any of us, you know, just to keep track of these things throughout so that when we go to file our taxes with our own accountants and whoever, you know, whoever we use for our personal taxes, you know, what, just so that everything appears kosher on paper, you know, do you recommend just keeping a running log of things? What do you, what do you guys see? What do you guys recommend? That we do to track all that?

Yeah, good question. So we have an Excel spreadsheet that we call our business organizer that if you want to shoot us your emails, we can email that out to you.

Okay.

But the answer is, so whatever form and fashion, you know, Katie, for Turbine, you guys use QuickBooks.

Right.

What QuickBooks is doing is summarizing all of the transactional data into categories. The Excel file is one where you can just do that manually yourself in Excel, and then you're not paying for some software. If you want, there are free versions out there that you can use. One that I have— one that I use that clients seem to like is called Wave Accounting. It's free. So that's an option, but the answer is yeah. We just want a summary for whoever's preparing your taxes. We'll want a summary of what you spent during the year.

Okay.

And that's per category, not like I spent $60,000, because that does— that's my favorite thing next to shoeboxes of receipts, because we really need it broken down. Like $5,000 on meals, $10,000 on supplements, those types of things.

OK.

Awesome. OK. Other questions? OK. A little caveat. So first, Jamie. Yes.

Do your homework.

Yes.

Total income, minus out your expenses. And if that is more than $5,000, we need to talk. And we need to talk like tomorrow.

So if it's more than what?

$5,000.

I'll get that number to you, Jamie, as soon as we are done.

Is that bad?

No, it means you're earning money and it makes sense. It makes sense to set up a business. And we can jump on that one-on-one call to talk about Why and get in the specifics of your scenario.

Okay, it just sounds very daunting, like we need to talk.

We gotta talk.

No.

Okay, cool. It's not. It's to save you dollars in taxes. That's what we're looking at. Um, okay, Katie, Greg, and, and Adam, this is a special kind of part that is just for you guys. Your business expenses, your personal business expenses, it will be of most benefit to you as individuals to run those through CrossFit Turbine.

So like a cell phone, Turbine should be paying for that?

Yes.

Okay.

Everything we talked about previously, like internet, anything that could be used to consider it a business expense.

Yeah. And the reason why that is, is in your scenario, you can't take those deductions on your— well, you could take them on your individual return, but there'd be a big limit and we wouldn't get all the tax benefits out And it's also, frankly, it just adds another, another risk for audit, which I prefer to stay away from. So it's better if those are paid out to your buyer. Okay, interesting.

So when I am— when I am accounting for that in QuickBooks, Then does that go under owners? How do—

So if it's Adam's cell phone expense, it's a telephone cost.

Okay, it just goes in those normal categories.

Those normal categories.

Interesting. Okay.

So what's gonna happen is Turbine's gonna look a lot less profitable, which for me I care less about, especially if it's money that you guys would be spending individually. All we're doing is we're taking dollars you're spending individually and we're making them a business expense. So it may make turbine look less profitable, but it'll save you on taxes.

Okay.

Yes, Adam.

Sorry, shooing people away.

Oh.

Knudsen's fault.

Ryan?

Is that Ryan? Yes, Ryan. Oh, he's too cool for us.

I understand. Forget about this, Ryan.

Yeah, that Ryan. Oh no, oh, okay, okay, okay.

Well, that was— yeah, that's good, that's good to know because I think all of us were just doing it separately on our, on our personal returns, just doing a percentage of our cell phone, a percentage of our internet.

So here's the reason why I don't like that. Okay, what are called unreimbursed employee expenses, and 2% of your adjusted gross income. So let's say you guys make $100,000 together, the first $2,000 of your unreimbursed employee expenses you don't even get to Oh, okay. So if we put them in the business, we're not subject to that limitation at all. And if we— and it also reduces audit. Nice one, Adam.

Sorry about that.

That was pretty good, right?

Computer just died.

That looked real slick.

It's okay, we're not tech people either, so We don't, we don't hold it against you. Just like when we come to your gym, you can't hold it against us when we do car cleans really bad. Yeah, that's right. What was the WOD today?

It was some rowing, 10 minutes of rowing, and then just 10 minutes of carrying stuff, sit-ups, and burpees.

Dead.

Good stuff.

Yeah.

Really simple.

Sounds good, except for the burpees.

Yeah.

I love burpees.

Me too.

I was telling— oh, I told you yesterday. Yeah, yesterday was Glen.

Yeah.

100 burpees at the end.

Who even wants to do that?

That's rough. I mean, even I would say that that's rough.

I, uh, I was talking to a box down in Texas, um, and he, a couple of years ago for his birthday, he did the burpee mile. He Have you ever heard of that?

We have somebody who's done it.

We had a member do that, yeah.

He was like, it took him, I think he said it took him 55 minutes of just straight burpees. No, this is just gross. Yeah, not for me. I love CrossFit, but I don't love burpees, which I know doesn't make any sense. Okay, other questions?

I know I've asked you a ton, Dustin, already, So thank you for that. I don't think I have any more.

Okay.

So, oh, we do. I mean, we have 3 coaches that are W-2s right now.

Okay.

That, and I mean, I think I told you in the email, they, you know, they don't necessarily make up a significant portion of our payroll expenses. Do we keep them on W-2s? Do we switch everyone to 1099s?

Good question. What do you think? I am—

I like—

it's gonna look the best and not fishy suspicious.

What's gonna look the best or what's gonna save you the most in taxes?

Both.

Okay, so to save the most in taxes, if all your coaches are 1099s, right? Now you need to structure it correctly. And we should have— if you go to our website, I think that there's a blog post about it.

Okay.

Okay. Then for your coaches, so Greg gets paid $1,000 on a W-2 wage. Right now he has to pay income tax on it.

Right.

If he gets paid $1,000 as a 1099 contractor, he might have business expenses that he pays tax on none of it. So you would just save, save that coach, save Greg, whatever, probably $150 to $200 in taxes.

Okay.

Okay, so we've been recording this. What we'll do is we'll make sure you get a copy of it, and if you ever want to watch it, they can just—

I can see all the highlights, like when my computer died.

That'd be great. Ryan can see himself like waving or doing his hair in the background. Chilling.

I'm not going to pick up the computer this time.

There it is.

Say hi, Ryan.

Hey, Ryan. His flowers look really nice. You can tell. Okay. All right. If there aren't any other questions, Jamie, if you want to put your— if you want to put your email address in the chat box, we'll send you that Excel spreadsheet. Adam, I already have yours. Katie, Greg, I already have your guys's. We'll just make sure this gets out to all of you. Okay?

Yep.

Okay, cool. Oh, baby.

There's a little guy. He made it.

Awesome.

Okay, if there are any other questions, um, I'm sure there will be when you get them, just go ahead and shoot us an email.

Awesome, thank you guys so much.

You're welcome.

Thanks guys, thanks guys, see ya.

Bye.