In this tip video, the presenter explains how different business entities—LLCs, S corporations, C corporations, and sole proprietorships—are taxed under the IRS code and why choosing the right structure is crucial for gym and boutique fitness studio owners. He recommends that active gym owners use an S corporation to reduce self‑employment tax, outlining how ordinary income from hands‑on work is subject to both income tax and self‑employment tax, whereas passive income is not. For a single owner, the gym should be formed directly as an S corporation; for multiple partners, a partnership LLC is suggested, with each partner’s interest held inside an S corporation. Passive investors who do not work in the gym can keep ownership in their personal name since they avoid self‑employment tax. The presenter warns that an incorrect entity can push modest earnings (e.g., $30,000 taxable income) into a high tax bracket, effectively doubling tax liability. He invites viewers to reach out for personalized advice and encourages subscription and sharing of the video.
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In this tip today, I wanted to go over tax entities. What do I mean by that? So I'm talking about LLCs, S corporations, C corporations. People throw in the sole proprietor into the entity conversation. The IRS tax code is going to apply the tax rules to those different entities in different ways, so there's benefits to some Pros and cons, if you will, of each entity. So when it comes to being a gym owner or a boutique fitness studio, we strongly recommend that you have an S corporation somewhere in your structure. If you're the single owner, then we recommend your gym be just straight up structured as an S corporation. If you have other partners, then maybe consider the gym is a partnership LLC, but instead of owning your interest in that partnership as an individual, own it within an S corporation. And the reason we like the S corporation when it comes to being a gym owner is because of the way the IRS classifies passive income versus ordinary income. If you're the owner of the gym and you work in the gym, then you are— then that income is considered ordinary income. What that also means is that there's a self-employment tax tied to that income. So you'll pay income tax and then you pay self-employment tax in addition to your income tax. Okay. I've seen people have the wrong structure, they're not making a lot of money, $30,000 taxable income, and they could be in the 50% tax bracket because they have the wrong entity set up. Now, if you happen to be an investor in a gym where you've funded it but you don't deal with the day-to-day, you don't need an S corporation. You can, you can have that Just come into your personal name because there's no self-employment tax tied to passive income. But the majority of you are actively involved in the gym, and therefore you want something that's going to help you reduce your self-employment tax, which is what an S corporation helps you do. If you want further information on this, Or curious on what a good structure for you would be, feel free to reach out to us. We'd be happy to help. And if you like the tip, as always, you know, you can subscribe to our YouTube channel. We also always appreciate it if you, if you share these with your fellow gym owners. So thank you very much.
