The difference between being an independent contractor and an employee can have significant tax implications for yoga teachers. Determining your employment status before starting your taxes is a must.

With tax season rapidly approaching, it’s time to get in the zone and prepare your mind (and body) for what’s ahead. With a reputation for being more complicated than necessary and a touch too stressful for comfort, tax season is not the time to be flexible with the rules.

Whether you’re planning to do your taxes on your own, work with a tax professional, or utilize tax tools that can help streamline the process, one thing is certain–you need to make sure you’re doing things right the first time.

So, before you tackle your taxes, you should familiarize yourself with some of the important tax rules that apply to yoga teachers–starting with whether you are classified as an independent contractor or an employee.

KEY TAKEAWAYS: Yoga Teacher Tax Implications

• Employment status matters & determines tax obligations and filing process.
• Form differences are important to know,  employees get a W-2, contractors get a 1099-NEC.
• Work control and employees follow employer rules; contractors set their own schedules.
• Tax responsibilities will differ, contractors pay all taxes; employees have withholdings.
• Deductions are different, too–contractors track and justify expenses; employees must itemize.
• Contractors manage their own savings; employees may have employer plans.
• Employee taxes are easier due to employer withholdings.
• A tax professional can reduce stress and ensure compliance.

Filing Taxes as a Yoga Teacher – Are You An Employee Or Independent Contractor?

Before you can properly file your taxes, you’ll need to determine whether you are an employee or an independent contractor. This may seem strange–you perform essentially the same job either way–but there are some notable differences.

Thankfully, the distinction between the two is usually easy to discern for tax purposes. If you receive a W-2 form, you’re probably an employee. On the other hand, if you receive a 1099-NEC form, you’re most likely an independent contractor.

However, there is a bit more to the conversation than which form you receive.

The Difference Between Employees & Independent Contractors

At its core, the difference between an employee and an independent contractor comes down to the level of control you have over your work.

If your work is primarily dictated by someone else (a boss, for example), you are probably an employee. Independent contractors have more (you guessed it) independence, meaning that they tend to set their own hours, own their own equipment, have financial flexibility, and might even work at multiple locations or studios.

While the debate is not always this straightforward, and there are some definite gray areas that can cause confusion, this basic breakdown of the differences between employees and independent contractors should provide some clarity as you go into tax season.

Employee vs. Independent Contractor Tax Differences

Why is the distinction between employees and independent contractors so important? Because it directly affects the way you pay taxes, the taxes you are responsible for, how you claim deductions, and more.

In other words, you need to be certain that you are one or the other before filing taxes as a yoga teacher. As a general rule, independent contractors will owe more taxes, but only because they don’t have an employer withholding a portion of their taxes for them.

Independent Contractor Taxes For Yoga Teachers

When you are a contractor, the responsibilities related to your taxes are more significant than yoga teachers who are traditionally employed. All of that autonomy and freedom you enjoy comes with a healthy dose of accountability, meaning that you are responsible for your taxes.

This increased responsibility can be summarized in the following ways.

• You are responsible for paying your taxes–all of them. In traditional employment, your employer is required to withhold taxes for you. As an independent contractor, that burden falls on you alone. So, be sure to set aside money for quarterly taxes, including 100% of the necessary Social Security and Medicare taxes (often called self-employment tax).
• You must track and be able to prove all of your deductions. This is a blessing and a curse. As an independent contractor, you can deduct your business expenses from your taxable income. However, you must keep meticulous records and be able to justify those deductions.
• Your retirement (and the corresponding tax benefits) is up to you. Choosing the right retirement account to invest in, contributing the proper amount, and enjoying the tax advantages of doing so are all excellent opportunities to set yourself up for success. They’re also entirely up to you to set up and fund!

Employee Taxes As A Yoga Instructor

One of the big benefits of being an employee is that it tends to simplify doing taxes. Because your employer is responsible for withholding and sending in a portion of your required taxes–including 50% of your Social Security and Medicare taxes–you have less to plan for and worry about when tax season comes around.

Like independent contractors, you have the opportunity to deduce some of your work-related expenses, but the form you use is different. You also will have to opt out of the Standard Deduction and provide an itemized list of your deductions.

For many employed yoga teachers, this additional work is not worth it. For others, the itemized deductions might not exceed the standard deduction–you will have to do the math and determine the right route for you.

Your employment status determines how you file taxes, the forms you will need to use, and even the taxes you are personally responsible for. Even if you choose to work with a tax professional–which is always a good idea if you are uncertain or overly stressed about taxes–knowing the basic differences between being an employee and an independent contractor is a must.