Personal trainers are an integral part of most gyms, but they can also be independent contractors and run their own businesses.
If you’re a fitness trainer or if you’re thinking about starting your own fitness company, you’re probably wondering “should a personal trainer have an LLC? or should they just operate as a sole proprietor?”.
Understanding the reason why, is the first step in choosing the right entity structure.
I also have to say that this is not financial advice as I can’t possibly know your personal situation and recommend the best route for you. This is put here to answer a few questions and to give my take on it.
Should a Personal Trainer Have an LLC?
Technically speaking, there are no shoulds and shouldn’ts. A personal trainer is not required by law to have an LLC or anything of that nature.
However, it’s reasonable to conclude that forming an LLC is the best method to stay on the safe side when you aren’t just working directly for a gym and getting paid an hourly wage or salary. Let’s elaborate on that.
An LLC will offer you protection when you’re working as an independent contractor. Not to mention, it provides you with many benefits over other types of business entities, such as sole proprietorships.
For example, It can protect your personal assets in case of a lawsuit or liability insurance claim against you or your business.
If you don’t get an LLC or another business structure, you’ll be exposing your personal money to business risks. On top of that, your business will be harmed by the lack of formal structure.
LLC or Sole Proprietorship for a Personal Trainer?
An LLC provides you with protection from personal liability if someone sues your personal trainer business.
It also protects both the assets of your personal trainer business as well as any assets you may have personally. Furthermore, you benefit from pass-through taxation and tax write-offs. Lastly, you avoid double taxation.
A sole proprietor, on the other hand, is a business owner that hasn’t formed a business entity. This means that the person who owns their own company takes all the financial risks themselves.
As a sole proprietor, there’s no legal distinction between you and your business. You’re one and the same. In other words, you’re your own boss!
A personal trainer can work as a sole proprietor if they want to. In fact, many do. But once they do, they’re completely defenseless against any potential legal action.
In addition, the personal training business is already risky as it is. There are so many things that may go wrong and cause individuals to be injured.
To summarize, it’s preferable to register an LLC as a personal trainer to prevent legal complications and stay on the safe side.
What Is the Purpose of an LLC?
A Limited Liability Company (LLC) is a business structure that provides limited personal liability protection for its owners.
In other words, if the company does something wrong or gets sued and ends up in court, the owner(s) aren’t personally responsible for any liabilities incurred by the company.
If you own a gym or any type of fitness-related business for that matter, it’s important to protect yourself from liability. An LLC does just that by helping to define what’s covered under the umbrella of your company and what isn’t.
If something happens at one of your locations, say someone slips on a wet floor or gets injured while using one of the machines, an LLC will protect you from being sued personally for damages.
The reason behind this is that an LLC is considered an “individual” entity”—it’s more like a shell that contains all the assets related to running a gym (including equipment), but isn’t legally responsible for any claims against these entities.
This is because they’re separate legal entities themselves.
How Can an LLC Protect You as a Personal Trainer?
As a personal trainer, you should consider incorporating your business. Here are two ways an LLC can protect you as a personal trainer.
1. Limited Liability Protection
An LLC offers limited liability protection. This means that if something goes wrong with a client in your personal training business, it won’t affect you personally.
Because of the fairly significant risk involved in training individuals in physical exercise, personal training businesses undoubtedly benefit greatly from limited liability protection.
Let’s put this into context; say you’re working with a client on a new workout that requires heavy weights. That client then drops a dumbbell or a kettlebell on their foot.
They become injured and are forced to be out of work for days or maybe months. Thanks to the LLC, your company’s the one that may be held accountable for the cost of their missed wages as a result of their accident.
This means the client can sue the company, but can’t sue you personally.
2. Personal Asset Protection
An LLC also protects your personal assets by separating you from the business itself. By forming an LLC, you and any other members of the LLC are typically protected from being sued and held personally accountable for anything.
If the company goes bankrupt or is up to its neck in debt, nobody can sue you for your personal belongings or anything of that nature.
For instance, an LLC creditor or a dissatisfied client can’t sue you for your home, vehicles, stocks, investments, real estate, etc. They can only sue for assets that are owned by the company.
As we mentioned earlier, an LLC is a legal entity that’s completely separate from its owners, unlike a partnership or sole proprietorship.
This is why so many entrepreneurs opt for an LLC when starting their businesses.
Do You Have Personal Trainer Liability Insurance?
Liability insurance is a must for any business owner, and personal trainers are no exception. This type of coverage can help protect your business from lawsuits that may arise out of an accident or injury involving one of your clients.
Whether you have liability insurance or not, discuss with a lawyer what could happen if you’re sued for hurting someone. It’s important to determine the worst-case scenario and which of your assets are in danger.
What Assets Could a Client Sue Their Personal Trainer For?
Let’s start by saying all of your assets are in danger in the event of a lawsuit. If a person owns a personal training business and it gets sued, both their personal and business assets might be at stake.
This, of course, depends on whether they’re a sole proprietorship, a general partnership, or an LLC.
If a personal trainer doesn’t create an LLC, they can be sued for whatever they own, including money in their bank accounts, automobiles, real estate, and other valuable assets.
Furthermore, if a personal trainer lacks sufficient assets to meet a judgment, they may be obliged to forfeit a percentage of their earnings to the individual who sued them.
In addition to wages, other future assets may be taken. These might include tax refunds, insurance payouts, stocks, commissions, or even some forms of trust income.
Do You Work for the Gym or Are You an Independent Contractor?
It’s not necessary to register an LLC if you’re a personal trainer who works in a gym. A Limited Liability Company is most beneficial to those who own a business of their own.
This is because, as opposed to being an employee, when you own a business, you put a lot on the line.
Does an LLC Affect How I Pay Taxes?
In addition to protecting you financially, an LLC can also be beneficial for tax purposes. You may have heard stories about how the rich don’t pay any taxes, and you may have also heard that LLCs help you evade taxes.
However, that’s not the case. LLCs aren’t a tax loophole. In fact, they have nothing to do with your taxes in general. For tax purposes, your LLC is viewed as either a sole proprietorship or a partnership.
In either case, it doesn’t necessarily mean that you’re avoiding paying taxes. Stacked up against other entity types, there are ways that you can look at an LLC as a tax advantage or benefit.
With that said, let’s go ahead and dig into what these tax benefits may be.
Pass-through Taxation
When it comes to entity taxation, there are two types of taxes that you need to be aware of: pass-through taxation and double taxation.
Pass-through taxation means that all the money your personal training business receives is subject to taxation. Even if you didn’t pay yourself a dime from your business income, you’ll be taxed on it.
Double taxation, on the other hand, means you’re technically taxed twice. Wait, how does that work? let’s quickly dissect what that means.
First of all, your business is taxed on all income. Secondly, when you’re paid, you’re also taxed on income that you take out of your business.
With that being said, a major tax benefit of an LLC is that it’s only taxed once via pass-through taxation.
Let’s look at an example of all of this. Let’s say you made $100,000 as an LLC. If your tax rate is 25%, then you’d only pay $25,000 in taxes.
If you’re a C corporation, though, things are a little different. Assume you earn the same $100,000 but as a C corporation. Your business will be taxed on that income first. If the corporate tax rate is 20%, you would owe $20,000 in taxes.
But that’s not all. You will also have to pay taxes on anything you receive from your business. If, for example, you decide to pay yourself $50,000 and your tax rate is 20%, you will have to pay an additional $10,000 in taxes.
As a C corporation, you would have paid $30,000 in taxes. As an LLC, you would have only paid $25,000.
Tax Write-Offs for Fitness Business
This is a significant benefit for self-employed individuals, which account for more than 60% of personal trainers. An LLC is typically considered separate from you as an individual.
As previously mentioned, this means your business finances should be separate from your personal finances. This makes it much easier for you to keep track of your business expenses in order to deduct them from your tax returns.
As the owner of a personal training business, you may be relieved to know that you can take advantage of small business deductions.
Having said that, you can also obtain several tax deductions. Here are a couple of examples.
1. Equipment
Any equipment and gear utilized only by your clients are deductible as a business cost. This might feature basic equipment like weights, machines, and mats.
But it could also incorporate sound systems or water bottle refill stations. As long as these products are being used by your clients, then you can deduct them from your tax return.
2. Music
Nothing beats a good Zumba class for dancing and working out at the same time. However, the CDs, paid downloads, or streaming services aren’t for free!
That’s right, these things are also tax deductible. That said, don’t forget to keep receipts that prove this music was used for business purposes.
3. Phone and Internet Services
Nowadays, it’s nearly impossible for individuals and businesses to operate without the usage of a phone and the internet.
However, both of these services cost money. As a result, they’re one of the aspects that are tax deductible.
However, it should be noted that you can only deduct the percentage of time you used these services for business purposes.
4. Gas
If you travel to train your clients, you can subtract the costs of vehicle use during business hours. You can do this in two ways:
- You can use the standard deduction, which is 62.5 cents per mile (2022).
- You can deduct gas, oil changes, and other vehicle-related costs incurred while conducting business.
Wrapping Up
An LLC is the best option for an independent personal trainer. It will give you a degree of protection from potential lawsuits and give you more control over how you pay taxes.
If you’re working as a personal trainer, it’s important to protect your business and yourself by forming an LLC.
