There are a lot of benefits associated with being an independent contractor, chief among them the freedom to choose when and where you work, the ability to be more selective about the clients you work with or the classes you teach, and the freedom to establish your own fees. Independent contractors simply have more control than company employees over the details of when, how and with whom they work.

You typically can’t tell your boss that you don’t want to lead early-morning group fitness classes on the weekends or work the floor during downtime between personal-training clients—unless you’re the boss! In that case, you set your own schedule and choose your own clients.

Of course, this freedom comes with its own set of costs. The downsides of being your own boss are primarily financial, as you are responsible for paying your own taxes (rather than having them automatically deducted from your paychecks), having to find and pay for your own health insurance and not having things like 401(k) packages to help you plan for your financial future.

So, if you are an independent contractor, here are some essential steps can you take to set yourself up for a secure financial future and eventual retirement.

Step 1: Understand your tax liabilities.

“First and foremost,” says Shannon Weinstein, CPA, a fractional CPA for growth-minded business owners looking to scale or sell their businesses, “the biggest concern is that your tax liability is not automatically withheld for you as an independent contractor like it is as an employee.” Many newcomers to the health and fitness industry fail to understand the tax implications of being an independent contractor and, as a result, find themselves in a financial hole before they’ve even begun their careers.

Consulting with a certified public accountant (CPA) is always a great idea for any independent contractor. A CPA can help you estimate your quarterly tax payments—which is an absolute must, as the Internal Revenue Service (IRS) can penalize you for non-payment, or even underpayment, of your quarterly taxes, not to mention late fees and interest. The last thing you want is to be hit with a huge tax bill that you’re not expecting at the end of the year.

Weinstein, who hosts the “Keep What You Earn” podcast and can be found at, explains that one thing independent contractors may not understand is the extent to which they can lower their tax burden by keeping track of expense deductions. “Things like software, home office expenses, vehicle mileage, meals, travel and other items they are already spending money on can actually help reduce their taxable income,” she says.

While you certainly want to be honest about your deductions and avoid an IRS audit, you also want to take full advantage of the tax laws and the benefits they provide to independent contractors. In addition to what Weinstein mentions above, consider the following list of deductions that you can take as a self-employed health coach or exercise professional:

  • Music CDs or downloads (used in group fitness classes)
  • Equipment and gear
  • Liability insurance
  • Business-related meals
  • Federal, state and local taxes
  • Travel expenses
  • Promotional/advertising expenses, including for your website
  • Health insurance
  • Continuing education
  • Self-employment taxes
  • Health and fitness journal subscriptions
  • Professional membership fees
  • Charitable contributions

Be sure to keep all receipts and take appropriate notes. For example, if you pay for a business-related lunch, record who attended and what was discussed. If you buy CDs or download music mixes, note in which classes they were used. Also, discuss the list above with your accountant to determine which items apply to your current situation. For example, a home office deduction may not be appropriate if you don’t have designated office space or a true need for a home office at this point in your career or if a space is provided for you at a facility where you work.

Finally, it’s vital that you maintain a separate checking account and credit card for business expenses. This will help keep personal and business expenses distinct and save you the hassle of having to sort through monthly statements to find deductible expenses.

Doing the Math—Federal Income Tax

Imagine you are a personal trainer earning $60,000 per year. According to a rough estimate based on this tax bracket calculator, you’d pay about $8,500 in federal income taxes.

Now, let’s start with that same $60,000 income but use the list above to take $16,000 in deductions. Your taxable income is now $44,000 and you’d pay approximately $5,000 in federal income taxes.

By being prepared and keeping good records, you just kept $3,500 more of what you earned this year.

Step 2: Manage fluctuations in income.

The first step to manage the inevitable fluctuations in income that come when you’re an independent contractor (e.g., the January boom and the June doldrums or the arrival and departure of seasonal visitors to your area) is to understand why they are happening. Only then can you begin to strategize ways to minimize or even avoid the dips in income.

Once you recognize the patterns in your income and understand why the ups and downs are occurring, you can begin to create strategies to overcome the low points and perhaps even make the high points reach even higher. Be creative in brainstorming ways to earn money during slower periods, whether that’s offering online sessions when the weather turns cold or family packages during the summer months when the kids are home from school.

It’s important for independent contractors to accurately forecast future trends in income. So, make sure you’re keeping records throughout the year, not only of your earnings, but also of class attendance, client dropout rates and new client acquisition. Then, use those records to forecast the same periods the following year.

A strategy that Weinstein uses with her clients involves ot only plotting out when revenue is coming in, but also when expenses are going out. “This is more than measuring profit because it considers timing,” she explains. “You can actually have a very profitable business but still have negative cash flow because the expenses hit faster than income comes in or because you have to pull so much out to cover your personal expenses.”

Proper budgeting and using any downtime wisely—for example, completing your continuing education requirements or doing market research—are also essential elements of long-term success as an independent contractor.

One more tip from Weinstein: “Beyond managing the unpredictability of income, I would recommend steering toward a business model that helps generate recurring revenue—perhaps a membership or subscription structure, steady consulting retainer, corporate work and other more secure sources—so the more unpredictable sources do not rock your boat as much when things become inconsistent.”

By properly anticipating and managing the ups and downs of your income over the course of the year, you can avoid the trap of falling into debt during the downtimes and then playing catch-up when things improve. That financial volatility can become a major roadblock in terms of long-term financial planning and setting yourself up for eventual retirement.

Step 3: Have a plan for retirement.

Now that you’ve figured out how to handle your taxes and manage the fluctuations in your income, it’s time for some serious long-term planning. Be sure to consult with an accountant and/or financial planner, who can help you not only conduct an assessment of your current financial situation, but also establish goals and a plan for a more secure future. The following is an example of how that process might go.

First, thoughtfully consider the following questions:

  • What is your desired age of retirement?
  • What is your desired lifestyle in retirement? For example, do you want to be able to travel, or do you plan to settle down in a retirement community or maybe live with one of your children?
  • What is your desired income or cash flow?
  • What is your plan when it comes to healthcare?
  • In what type of home do you want to live?
  • Is working during retirement an option?
  • What will be your state of residence? (Some states have no income tax for residents, which makes them a prime choice for retirees on a fixed income.)

Next, evaluate your current financial status. This includes any current credit card debt, car payments and/or mortgage payments. If you have substantial debt, your first priority should be to pay that off and start building your savings. Also, take stock of any savings you have, as well as any equity you may have in your home, for example. Essentially, you want to conduct a baseline assessment so you know your starting point and can accurately gauge your future progress. 

It is also important to create a monthly budget of current income and expenses to identify the amount of money available for a retirement savings account. Considerations for a monthly budget include:

  • What is your net take-home income from all sources (e.g., private clients, online sessions)? This is important not only for identifying your total monthly income, but also because owners of a legal business entity have a variety of options for retirement planning that are not available to traditional employees (more on that below).
  • What are your necessary monthly expenses for categories such as housing, food, transportation, communication (internet, cell phone, etc.), clothing, professional development, exercise equipment, insurance or other costs related to operating as an independent contractor? You should already have this list if you’ve itemized your deductions, as described above.
  • What are your ancillary expenses for entertainment, travel or hobbies?
  • Based on the income from all sources and where it is allocated to manage expenses, how much do you have available to save for retirement?

Depending upon how you answered these questions, you might determine that you need to start looking for opportunities to increase your current income, such as taking on more clients or offering online group fitness classes or personal-training sessions. You might also look for ways to reduce your expenses, both personal and professional.

Weinstein offers a few practical strategies that you can implement right away:

  • Understand your cash flow: Know how much you can actually spare to save without hurting your cash flow.
  • Automate your savings: Set up an automatic transfer to your savings every month, no matter the magnitude, just to build consistency. You will learn how to operate with the rest and almost forget it is being taken out.
  • Invest in savings vehicles you understand: Don’t get fancy when it comes to risking your future.

That bring us to our final step…

Step 4: Understand your savings options—and start contributing now.

This is where working with a financial advisor becomes extremely valuable. You can find a financial planner through the National Association of Personal Financial Advisors ( Most financial planners charge an hourly rate for their services, and this is money well spent for an independent contractor, as there are a number of options available and things can get pretty confusing if you aren’t familiar with the terminology and the differences among those options.

For example, explains Weinstein, “Independent contractors are business owners and have the ability to save for retirement in common business vehicles like a Solo 401(k) or simplified employee pension (SEP) IRA. If you plan on only setting aside a few thousand dollars a year, you can also open up an IRA that is not associated with your business.”

“If you would like to set aside money and invest but maybe do not want to lock up your funds until retirement,” she continues, “it’s also worth considering a taxable brokerage account. Just keep in mind that in a taxable brokerage, you will be taxed on the gains of the positions you sell. The limits of what you can contribute to what type of account change annually so make sure you understand the limits that apply to you.”

Here is a quick rundown of your options. You can learn more about the contribution limits, tax benefits and other details here and here.

  • Traditional or Roth IRA: These are best if you are just starting out in the fitness industry. If you are transitioning from an employee to an independent contractor, you can also roll your old 401(k) into an IRA. This is probably the easiest way for you to start saving for retirement today.
  • Solo 401(k): This is a great choice if you are self-employed or a business owner with no employees. The Solo 401(k) is best for individuals who want to save a lot of money for retirement, or who want to save a lot one year but less in others, as the contribution limits are very high.
  • SEP IRA: This is best if you are self-employed or a small-business owner with no or few employees. A SEP IRA is easier to maintain than a Solo 401(k) (i.e., less paperwork and no annual reporting to the IRS) and has similarly high contribution limits. The complicating factor is that you, as the business owner, must make contributions for employees that are equal in terms of percentage of pay to what you make for your own retirement.
  • Defined benefit plan: This is a great option if you have no employees, have a sizable income and want to save a lot for retirement moving forward. Essentially, this is a pension plan for independent contractors. Unfortunately, they’re expensive to start and maintain, so they may not be a good choice for everyone.
  • Brokerage account: This is simply an investment account used to trade stocks, bonds, mutual funds, etc., that you manage with the help of a brokerage fund. For many people, this is an add-on option after also using one or more of the options listed above.

Final Thoughts

“Don’t get fancy when it comes to risking your future,” urges Weinstein. There is a lot to learn about financial planning and investing, especially if you’re not familiar with the terminology or are just starting out in your career. That said, the sooner you start, the better off you’ll be in the long run. Start small if you have to but start now—even if that simply means having a defined plan to start chipping away at credit card debt. Every dollar counts!

The information provided in this article is for education purposes only and does not represent, nor should it be construed, as professional, legal or tax advice. To determine specific individual tax or retirement needs, ACE recommends working with the appropriate financial, legal or tax professional.