#333: How Health Coaches Can Keep Taxes Simple (and Stress-Free!)

Michelle:
Hey there, health coaches. I am here today with Sara Fins, the one the only to talk about keeping tax time simple and stress free, which is probably what we need to hear right now. I'm recording this on April 1st. Some of y'all might be feeling like a hot mess. We want to help you make sure that next year is smooth sailing and maybe clean up some of the edges for this year too if we can. So if you're joining us live as we record this episode, or even if you're watching the replay later, tell me in the comments, how's your tax season going? I'm super proud of myself because for the first year ever, everything is filed. My tax return is on its way. Anyway, Sara and I go way back. She's a health coach herself, a former CPA and finance expert for coaches like us. Thanks for joining us, Sara.
Sara:
Happy to be here.
Michelle:
We are so glad you are. Everybody's like, ah, what do I do this time of year? So if you're listening and you're like, this is exactly what I need, my finances are a mess. I've got receipts and little balls in my purse. I have no idea how to manage my money. I'm glad you're here. And Sara has a free workshop coming up. It's called Know Your Money, grow Your Business, which you can sign up for. Again, it's free@healthcoachpower.com/money. And I'm going to put that link in the show notes too. But again, it's healthcoachpower.com/money. Go check that out. Sara, I thought we should just jump right in. Sound good?
Sara:
Yeah, sounds great. Let's go.
Michelle:
I know everyone has a lot of questions, so I'm trying to encapsulate the ones that I hear most. But for those of you that are here live as we record this episode, go ahead, ask your questions as we go along. I have my eye over here on the chat area so that we can help you out. Alright, so let's say, Sara, let's just say that I did not already have my taxes filed. I'm so proud about that. But let's say I did not and everything was just like a mess right now and I've been there. I'm remembering the year that my second son was born and I was just totally overwhelmed going through months and months and months of bank statements trying to figure out anything that happened. What would your advice be if we're in that hot mess state right now?
Sara:
Yeah. Well first of all, if you're in that state, you're not alone. I see this all the time. I mean, as entrepreneurs, we have so many things on our plate that this always winds up getting pushed to the side. But what I could recommend is getting organized as soon as you can. That is the most important thing you can do. And what I mean by that is set aside some time on a regular basis to sort through your financial information, organize your receipts, look at your bank account, things like that. So that way when tax does roll around, you're not scrambling at the last minute. So getting organized ahead of can go a long way to bring that stress down and just make the whole process a little bit easier.
Michelle:
Sounds to me like when your best laid plans for dinner and planning healthy meals falls through and you're like, I don't know. I'm just going to order pizza right now and I'm going to sit down and make the shopping list for next week. So should we just get through it for right now, but knowing that we could start today to make sure we're in a better place for next year?
Sara:
Exactly. Exactly. And also to make notes if there are certain things that are tripping you up or there are certain things that you get stuck on as you're doing your taxes this year, make some notes of that so that you know what to focus on right away next year to help get yourself more organized
Michelle:
We're already a couple months into this year.
Sara:
Yep.
Michelle:
If there have been no systems in place, let's do it now so we can get 20, 25 all straightened up and that's going to feel really good. In addition to just being less stress, chances are you'll save money when you've actually recorded everything properly.
Sara:
Yeah, absolutely. Because if you're on top of it and you have questions about deductions you can take or things like that, you'll be able to research it. Also, you can potentially make mistakes if you're rushing. And so if you're looking at it over time and taking your time with it, you'll make less mistakes and that can make sure you're maximizing the amount of money that you're saving on your taxes. So yeah, there's no wrong reason for getting ahead of it.
Michelle:
And guys, that's just another way to make money is to keep the money that you already made. I know there are years that I paid way too much in taxes. I just didn't know what I didn't know, and I was in just crazy town with having babies and not paying attention to anything. So I'm sure I lost thousands to the IRS. Now, that being said, I think we should all just pause and breathe. It's hard when you're in the middle of it or maybe you're listening to this episode at a different time of year, whatever. It's a lot. And money can be triggering, money can be emotional. So Sara, I know when you work with your clients, I mean some of them must be just very boom, boom, boom, I'm just going to do the thing. Others must have some sort of emotional response to all this. How do we move through that?
Sara:
Yeah, it's super common. I mean, we've been taught as women in a lot of cases that money is not something we can learn or can know, but I believe that everyone could learn what they need to know when it comes to their finances. You don't need to know everything. You just need to know certain things to get you through. And if it's something that's triggering to you or makes you feel nervous, I recommend a few things starting with baby steps. So you don't all of a sudden need to be able to put a whole set of financial statements together and all of that by yourself. Start with maybe looking at your bank accounts on a regular basis. Put some things in place that make that feel more comfortable for you. Maybe you want to work with a buddy, one of your business besties or something like that, or put on some music, have some tea, whatever it is that makes you feel more comfortable and make it kind of a habit that can really help push through.
And then the other thing is too, if there are things that you're feeling uncertain about, find someone that you trust to help you learn what it is you need to know. And what I mean by someone you trust is that somebody that you feel comfortable with and you feel like is not glossing over the answers or looking down on you or whatever it happens to be. So you want to find someone that's teaching in a way that you can understand and that you like their vibe. So I think that those are some things that you can start with, but making the time commitment to take those baby steps to work through it will really serve you well in the long run.
Michelle:
And you're right, A lot of times when I would ask for help with this stuff in my business, the answers were either condescending or not actually applicable to me in this type of business. A lot of accountants that I would speak to if I had a brick and mortar shop on Main Street, they totally understood that and their questions and answers, everything made sense for that kind of business. But in my kind of business, they were like, what do you do?
Sara:
Exactly.
Michelle:
I find that's really common. So look for someone who gets this, and that's why I try to bring Sara to you about finances. And Lisa Fraley comes to talk about legal issues, people who really understand health coaching because it's different. It's not a super common thing that every professional knows about. So that being said, let's just start with some basic stuff because I know when I first started out, I was like, I had always done my taxes myself. And as it got a little more complicated adding on a business or you own a home or you have investments, I found it harder and harder to do myself. So I just want to start with the basics. So if we're making money in our health coaching business, let's say we graduated in the last year or so, we've worked with a couple clients, do we put that money on our personal tax return or what?
Sara:
Yeah, so if you're a sole proprietor or an LLC, a single member LLC, which most of us are coming out of school, you file schedule C on your personal tax return. So basically it's a supplemental schedule that you file with your personal tax return and you report on that income you earn from your business in all areas, if you have affiliate sales, if you have client sales, if you have courses, things like that. And then you have what's called deductions, which are business expenses that you can claim to offset the revenue that you earned. So those are the things that you put on this Schedule C and it gets kind of rolled into your personal tax return and the end of the day, that's your refund or the amount that you owe.
Michelle:
Okay, so I know someone out there is like, I don't know if I have an LLC or am I a sole proprietor? So I just want to be clear, if you haven't done anything by default, your sole proprietor, congratulations,
Sara:
Correct and that's great. That's say, okay, and having an LLC is just that kind of extra step to formalize things.
Michelle:
And also correct me if I'm wrong, but there's no difference in terms of your taxes or how much you'll save or anything Sara just explained. You do the exact same thing whether you're a single member LLC or a sole proprietor. So it doesn't really matter in terms of your money or your taxes,
Sara:
Correct. That's right. Okay.
Michelle:
So if you're freaking out, you have to become an LLC right now. You can do that, but it has no bearing on what we're talking about.
Sara:
And you can still have your business and you can still make money, and you can still do all of those things without having that LLC.
Michelle:
Yeah, I didn't have an LLC for many, many years just because it was so overwhelming for me to even think about when I started my business anyway. The IRS doesn't care. They want your money and they don't really give a damn what your business is structured
Sara:
As. Yeah, and I know this is something you say a lot, but just get out there and do the thing so that you can start making money and get your business off the ground. That's the most important really.
Michelle:
Yeah, I mean for paying taxes, that's great. That means we made money. Which brings me to my next question. I know a lot of health coaches are in this boat. What if I haven't actually earned anything yet? Or maybe I spent more than I earned.
Sara:
So if you haven't spent anything and haven't earned anything and you've started your business, but it's not really gotten going, you don't have to file a Schedule C that year. Once you start filing though, the IRS will let you claim a loss, which means you spent more than you earned only three out of five years. So if you have just a little bit of income or you have zero income, but you have expenses, you may not want to claim that in the first year because the point of claiming those expenses is to offset the revenue that you're making. So just to keep that in mind, but if you don't have any money coming in yet and you're not really spending anything yet, you can hold off until you are to then file the schedule C for the first time.
Michelle:
And I guess to piggyback on that, what I hear from a lot of coaches is like, I'm still paying back my tuition from getting my certification. So even if you maybe worked with a client or two and made some money, you're still paying back thousands and thousands. But does that count as a deduction or as an expense against your business if you're paying back for your initial health coach
Sara:
Certification? It does. Yes. Paying back for your health coach certification is a qualified deduction, but you really need to have money to be offsetting against that because again, then you're just claiming expense, but you don't have any money coming in to use against that. But yes, it does. If you're making more money than it is that you're paying back, absolutely you can take that as deduction.
Michelle:
Alright, Hey, to hear that everybody you think about that you still spending money down your certification, think about the various ways that you're spending and we want to make sure that you're not paying taxes where you don't need to.
Sara:
Exactly.
Michelle:
Alright, so you talked about getting organized. A lot of people don't like that. What would that actually look like for a coach? Do we have to get QuickBooks? What step do we take?
Sara:
No. Yeah. So the first thing that's the most important is really to, in my mind, separate your business and personal expenses. So that can look like creating a business bank account or just opening a separate bank account that you use, checking account that you use solely for business expenses. If you're using a credit card, same thing. And the reason why I say that is because it's so much easier when you are tracking and getting everything together not to have to sort through all of your personal finances to pull out the business expenses. It will save you a lot of time. So as soon as you can do that, the better. And then in terms of a system for tracking, the most important thing is to have something that you feel comfortable using. So I know everybody runs out, they want to buy QuickBooks. QuickBooks is very, it's built for accountants really.
And so if you don't have an accounting background, it can be tricky to use. And so what that means is either you're going to have to hire someone to help you or you're going to start using it, but you won't know how to pull what you need out of it. I've had many clients come to me using QuickBooks and saying, I don't even know how to take this information and file my taxes with it. The other thing is it could be very cost prohibitive, especially at first, it's expensive. And the reason why I actually created my business in the first place is because I felt like I saw so many people spending more money on things like that than they needed to. And I knew there could be a simpler solution. So something like my system, which is made up of some spreadsheets and things like that, you can design your own if you're good, that the most important thing is to just get all the revenue, all the expenses organized in a way that feels comfortable to you and that you'll actually use. Because going back to the question before, if you're feeling overwhelmed and it's kind of like an emotional thing for you and the thought of sitting down and doing that is overwhelming and off-putting, you're just not going to do it. So finding a system that is affordable and that you feel comfortable using is really important. When it comes to tracking,
Michelle:
It reminds me of so many ways that health coaches spend money where you don't really need to, especially if you're only working with a couple clients here and there, you don't actually have that many transactions that you have to record. I mean, at some point, bless, I want everybody selling your courses and your group programs. You should have tens of thousands of transactions every year. But it was not that way in the beginning for me. And I know a very simple spreadsheet can do the job and spreadsheets are free. I mean break open a Google spreadsheet, boom, boom, boom, you're rocking and rolling. There's no reason to pay that monthly fee of QuickBooks, especially then you have another learning curve. How do I even begin to use this,
Sara:
Right, And it's more time consuming in the long run. And so I do believe that there's a time and a place to start outsourcing, but at the very beginning, I really don't think it's necessary for most health coaches.
Michelle:
And no one's looking into your office or your kitchen table where you're doing work and going, oh, she's not using QuickBooks, she's not a real health coach. I think sometimes we just want all the bells and whistles that make us feel official. What will make you official when you have money in your bank account? So skip all the costly stuff. Jenny's saying, I have a separate bank account, but the expenses are coming through my card. Should I have a business card to keep it separate?
Sara:
I do recommend having a separate card. You don't have to, if it's something that's going to hold you back, you can still continue to use your personal card, but it will make your life a lot easier if you have a business card. And if you don't want to open another credit card, you can get a debit card associated with your business account typically and just use that for transactions that require a card. So that's a good way to go if you don't want to open another credit card.
Michelle:
I don't know why I waited so long to do this. I remember the day that it was not a business credit card either because I thought, oh, I had to have a business credit card and how do I do that? And I need my EIN number. It just felt complicated. You could just open up another credit card just like exactly you would for yourself except this one, you know, only use for business or just get the debit card associated with your business checking account, which could just be another personal checking account, just a second checking account.
Sara:
And if you already have two credit cards, just decide from whatever point forward you're going to use one only for business. You can do it that way too. It's really just for record keeping purposes to make your life easier when you're looking through everything at the end of the day.
Michelle:
That's it. Just got to keep 'em separated. All right. What about Wave? I hear people talking about Wave. Jenny was just asking of any thoughts on Wave software? I've never used it.
Sara:
Yeah, I mean I haven't used Wave either. I hear some good things about it, but again, to me it's another system you have to learn how to use. So if you are into tech things and something that sounds interesting to you, you could give it a try. But again, the most important thing is something that you like and you feel comfortable using that you're actually going to use.
Michelle:
Perfect. All right. So here are the Cliff notes. Get a spreadsheet. A spreadsheet, make a list. I mean that's really it. Even if you're not doing any fancy math or formulas in that spreadsheet, just having a record of everything that happened in your business is going to be advantageous. And so here's what happens. We don't look at it, we don't look at it. It's already April of 2025 right now. Maybe you haven't looked at anything that's happened so far this year. Before you know it, it's going to be next tax season. And that's where I think it really becomes overwhelming. You got to look through months and months of stuff and try to figure out, oh, when did I get paid for that? How much, when did I buy this? So is there a schedule that you recommend for sitting down and
Sara:
Yeah, I mean it really depends on the volume in your business. I would say monthly at the very least. So in my program I have monthly money days with my clients once a month. It feels doable for most of them to do that. I like to look at my finances every week. It takes me less time when I sit down to do it at that moment. And I just find it easier to keep on top of things. Plus, if you're looking at your finances that regularly, if there's an error or if there's a subscription you meant to cancel that you're still getting charged for or whatnot, you're going to find that out more in real time than you would if you waited three months to do it quarterly and then it's three months have already passed and now you have to go back. So as often as you feel comfortable, once a month at least, and I like weekly at least to review your bank accounts, if not to enter your information that you're tracking system
Michelle:
Could, you know what you'll find too? You'll find those charges that come through with some cockamamie name and you're like, what is this? And if you're thinking about it six months later, you're not going to remember what that was. Or if it's not supposed to be there, that's a bad charge, who knows? But if you just did it last week, you're going to remember that that's that thing you ordered off Instagram or whatever.
Sara:
Right. Right. Exactly. And everything is subscription based now it seems, right? So if you don't remember something's going to renew, the more on top of it you, you can kind of get ahead of that and not have something renew that you didn't intend to continue with or whatever.
Michelle:
Yes to be. PS the more often this comes just from years and years of running my own business, the more often you look at your bank account, the more money I think you're going to earn just kind of automatically. Energetically. Energetically because you're just going to be like, oh, here are dollars or here are not so many dollars or whatever. And it's just going to be on your mind that you're in business presumably to earn a profit, right?
Sara:
Yes.
Michelle:
So when you're looking at the numbers, I feel like it just puts you in that state of remembering that.
Sara:
It does. It puts your energy there. And also the other thing too is when you're looking at it regularly, then you can analyze too, what programs are you running that are making you more money and which ones maybe are not? And you're spending a lot of time and it's easier to stay on top of those things and evaluate those things when you're looking at it more regularly and doing it in real time.
Michelle:
Awesome. Alright. So I'm always talent health coaches, like we just said, don't spend the extra money on QuickBooks. No, you don't have to pay to use even an email service. You can get started with something for free. If anyone who's done any of my programs, I'm always like, here's the free way to do it. Do it with a Google form, do it. You can do most things with free tools, so you shouldn't have a ton of expenses. But that said, I think that there are a lot of expenses that health coaches could be writing off that we usually don't think about or you may not have considered up until now. You want to just rattle off a few common ones.
Sara:
Yeah, sure. So overall general rule is any expenses that relate to the running of your business. And so for health coaches, it's things like any professional services that you have, trainings, continuing education, professional memberships. If you have a dedicated office space for example, you can typically take a portion of that as a deduction. Office supplies your computer and if you hire someone to help you for your website, things like that. So anything that you can really think of that is a legit business expense is typically okay to take as a deduction.
Michelle:
So like yesterday, the cord that connects that monitor to this monitor in my office broke. And so I just quick went on Amazon and I made sure to buy it with my business card. So it's automatically tracked as a business expense. Obviously it has to do with running my business and I'm so glad I got it Now it's plugged in and we're working. So that's like a very clear cut one. I think the office expense I avoided for years, I just didn't know how to do it. She has to take a tape measure and go around measuring our room and figuring out what percentage of our house is actually our office.
Sara:
I mean, it can be a little tricky because the IRS says that it needs to be a dedicated workspace. So if you're using your dining room table for example, it's not really going to count because even though you're using it for business, you're also having dinner there and maybe your kids are doing their homework or whatever, but if you have where I'm sitting now, this is my office, and you can take, so the percentage of whatever the office is, of the whole house, so say it's 10% and then apply that to things like your electric bill. So 10% of your electric bill, 10% of your mortgage, or 10% of, even if you have a cleaning person, for example, 10% because they're cleaning the office, that's 10% of the fee. So you can take all of those expenses. It's different if you have an office that you rent. In that case it would just be the fee for the office space that you rent. So it's kind of one or the other. Again, you don't want to take this though if you have minimal income coming in just yet because you want to make sure that you're offsetting that you have coming in. So just a good rule of thumb. But yeah, it's a good one to be aware of because it can help you out for sure.
Michelle:
Alright, so remind us again, the reason we wouldn't want to just write off every expense and show a loss is because it's a red flag over too many years to the IRS.
Sara:
Exactly. You can only claim a loss. I believe it's three out of five years. And also like you just said, it could be a red flag for an audit. And so I don't say that to scare anyone, but what would happen in an audit is the IRS would say, you put this on your Schedule C, show me how you came to those numbers. And then they would look at them, which is another reason why you really want to have your organization kind of buttoned up because if they come to you, you can just say, oh yeah, that was these receipts from this company and this is what I spent. So they're not really out to get you, but they want to be sure that what you're putting on that Schedule C is an actual expense. Yeah.
Michelle:
Okay. So let's do a quick check here in the comments Zoom, if you're paying for Zoom,
Sara:
Mhmm.
Michelle:
That'd be a business expense.
Sara:
Yes.
Michelle:
If you signed up for Fast Track this spring,
Sara:
Yes.
Michelle:
A business expense 1000%. If you're paying for Canva, which you don't have to because you can use Canva free version. But if you're paying for Canva, that's a business expense and anything related to your website, definitely.
Sara:
Correct.
Michelle:
Okay, cool.
Sara:
All those things count.
Michelle:
I like to say that my hair products are a business expense because you all better believe I'm not doing my hair nearly this often if I wasn't on video as much as I am my accountant and I disagree on this one. Now, maybe along those lines, or maybe just in terms of this whole topic, what are some common mistakes that you see health coaches making when it comes to their taxes and their finances?
Sara:
Yeah, so I mean overall it's waiting until the last minute really. It's not even necessarily so much about the deductions. And there are a few, like you said, a lot of people ask, can I deduct my clothing if I'm wearing certain clothing? Only if it's a uniform. So no, you can't only if it's uniform. And then also meals. If you're meal testing and meal prepping for recipes, you actually can't take those as a deduction either. So those are some deductions. But in terms of overall mistakes I see are really not getting organized until the last minute. Not making a regular time to look at your finances and not learning the things that you need to know, which again, doesn't have to be everything. You don't need an accounting degree, but you need to learn how to keep track of your money.
Michelle:
All right, well there you go. I'm sure a lot of us listening or listeners are like, that was me. That was me. So if you have listened to this episode and you've taken in everything we've talked about and you're still having a minor panic attack like Sara, who should attend your Your Money Grow Business workshop, how can they tell they really need the help?
Sara:
Yeah, I mean, this workshop is designed for coaches and wellness professionals, health coaches who are looking to get organized. So maybe you're in the first few years of your business, you're not exactly sure what to track, you don't know where to get started, you don't really know how to get yourself to keep that momentum. So if that's you and you feel overwhelmed and you don't have a plan, I would love for you to attend. And that's the kind of things we'll talk about in that workshop.
Michelle:
So if that's you, go sign up for Sara's free workshop right now. Go, go. Don't even think about it. You need this, you know, do. It's at healthcoachpower.com/money. And again, Sara's not going to look at you cross-eyed when you tell her that most of your income is coming through PayPal or Stripe or that you use Zoom or whatever. She's going to totally understand what a health coach does. Sara, we are grateful for you. Thank you for being here. Thank you everyone for joining us, and I'll be back next week. Take care.