As a fitness instructor, your income can come from various sources such as:
- personal training sessions
- semi-private training
- group classes,
- online training
- merchandise
- seminars/workshops
- programmes
It's important to understand the concept of gross income and income tax when it comes to managing your finances.
Gross income refers to the total amount of money you earn from all sources before any deductions are made. This includes your hourly rate or salary as well as any bonuses, commissions, or tips you may receive. It's important to keep track of your gross income throughout the year so that you can accurately calculate your taxes and ensure that you're being paid correctly.
Income tax is a percentage of your gross income that you're required to pay to the government. The amount you owe depends on your income level and tax bracket, as well as any deductions or credits you may be eligible for. It's important to file your taxes accurately and on time to avoid penalties and interest charges.
When calculating your net income (profit), you'll need to subtract any deductions (expenses) from your gross income. This can include expenses related to your business, such as equipment, travel, and marketing costs. You may also be able to deduct expenses related to your home office or vehicle use, depending on the type of business set up.
Income sources
To ensure you make enough income to cover your expenses, it's helpful to understand what types of expenses your business will incur. Here are some possible expenses that a fitness instructor might incur:
- Rent for a studio or gym space
- Equipment costs, such as weights, mats, and resistance bands
- Marketing expenses, such as website fees, advertising costs, and business cards
- Travel expenses for attending conferences or meeting with clients
- Insurance premiums for liability and professional coverage
- Certification or training course fees
- Phones bills
- Office expenses, such as paper, printer ink, and software subscriptions
- Utilities and internet fees for running an online business
- Professional dues and memberships
- Taxes, including income tax and self-employment tax.
Note that this list is not exhaustive, and the specific expenses that a fitness instructor incurs will depend on their individual circumstances and business structure. It's always a good idea to keep track of all expenses throughout the year to ensure accurate accounting and tax reporting.
To build on what we previously discussed about income tax, let's explore this topic in more detail and look at some of the different types of income taxes that you may encounter as a fitness instructor. The following image demonstrates how to calculate the net profit. Remember, this is the portion in which income tax will be assessed, known as the taxable income.
Case Study
Meet Sam.
Sam is a male personal trainer who works out of a gym in a mid-sized city. He charges $60 per session and works with an average of 20 clients per week. Sam is interested in calculating his net profit for a 4-week period.
Revenue:
- Sam charges $60 per session and works with 20 clients per week. This comes to 20 sessions per week.
- Total revenue for the week: 20 sessions x $60 per session = $1,200.
Expenses:
- Rent for his gym space is $300 per week.
- He spends $30 per week on marketing efforts, including online ads and flyers.
- He spends $20 per month on continuing education courses and certifications. This comes to $5 per week approximately.
- He spends $10 on his phone service per week.
- He spends $334 on REPS yearly fee. This comes to $7 per week approximately.
- Sam's total expenses for the week: $352.
Net Profit:
To calculate Sam's net profit, we subtract his weekly expenses from his weekly revenue:
$1,200 - $352 = $848.00.
Therefore, to calculate the 4 week period, you need to times the weekly net profit by 4.
$848.00 x 4 = $3,392.oo
This means that Sam's net profit was $3,392 for the 4-week period.
It's important to note that this is just one example, and the revenue and expenses for a personal trainer can vary depending on factors such as location, pricing, and expenses. Additionally, taxes and other factors can impact the final net income of the business.
See below how Sam used a business spreadsheet to calculate his net profit before tax:
At the end of a financial year, anyone who is self-employed or earning an income from a business will be required to complete a tax return (IR3); this does not apply to those who are employees.
You can use the New Zealand tax rates mentioned in the following table to guide you to which tax rate applies to you.
| Current income tax brackets | ||
|---|---|---|
| Tax rate | Lower threshold | Higher threshold |
| 10.5% | $0 | $14,000 |
| 17.5% | $14,000 | $48,000 |
| 30.0% | $48,000 | $70,000 |
| 33.0 | $70,000 | $180,000 |
| 39.0% | $180,000 | |
| New income tax brackets | ||
|---|---|---|
| Tax rate | Lower threshold | Higher threshold |
| 10.5% | $0 | $15,600 |
| 17.5% | $15,600 | $53,500 |
| 30.0% | $53,500 | $78,100 |
| 33.0 | $70,100 | $180,000 |
| 39.0% | $180,000 | |
Provisional tax is a way of paying your income tax as you go. In other words, your taxes will be paid throughout the year in instalments rather than at the end of the financial tax year. Provisional taxes will apply to you when your residual income tax (RIT) is more than $2,500.
There are 4 options available to determine the provisional tax.
Click on each option to determine which best suits your business.
If your income is stable or expected to rise in the next year, the standard option can be beneficial for you.
Opt for the estimation option if you anticipate a drop in your income in the coming year.
With the accounting income method (AIM), you're only required to pay provisional tax when your business generates a profit.
The ratio option is suitable for those who file monthly or 2-monthly GST returns and experience fluctuating income.
Provisional tax calculation
“Provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of the year. You’ll have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return.
When you file your annual tax return and calculate the tax you owe for the year, you subtract the provisional tax you paid earlier.” (Inland Revenue, 2023)
See the following example where Kira earns a salary and also has self-employed income.
| Salary | $ 14,800 |
| Plus self-employed income (net profit) | $ 47,600 |
| Taxable income | $ 62,400 |
| Tax on taxable income | $ 11,740 |
| Less PAYE deducted from the salary (not including ACC earners' levy) | $ 1,610 |
| Residual income tax (RIT) | $ 10,130 |
Kira’s RIT is more than $5,000 so they will have to pay provisional tax for the following income year. (Inland Revenue, 2023)
Read more about what happens at the end of the tax year by accessing the following website: Inland Revenue.
A part of running your own business is keeping a record of the income and expenses for tax purposes. Is advised to review the Archives and Records Association of New Zealand who outlines the Record-Keeping Legislation for both paper and electronic-based documentation along with other various types of documentation such as financial records. The Securities Act 1978 states all records of an accounting nature should be kept for a minimum of seven years. Some records you need to keep include, but not limited to:
- Proof of income (bank statements, invoices, etc)
- Proof of expenses (receipts, invoices, emails, etc).
It is advised to discuss this further with your accountant in order to ensure you are collating all vital information to safeguard yourself and appropriately prepare in the event you are called for audit.
Watch
In the following video Personal Trainer Tash discusses how she manages her business finances.
