Note: This article was not written by a tax professional. ABMP does not intend the information in this article to be official tax advice. Please consult a certified tax preparer regarding the material in this article to determine if it is applicable to your situation. Since tax laws are fluid in our current economy, please check with IRS.gov for up-to-the-minute information.
For massage therapy small business owners—as well as massage therapists who receive 1099s from the IRS as contractors or solopreneurs—managing taxes is a crucial skill for maximizing profits and staying in compliance with ever-changing IRS regulations. Following are top tax tips to help you to generally navigate your taxes as a small business owner. Additionally, we included a section on specific tax changes for the current IRS 2024 tax season—the taxes you’ll be filing by April 15, 2025.
1. Track Your Business Expenses
This goes for business owners as well as MTs who receive 1099s. Keep detailed records and maintain a log of all business-related expenses—manually or electronically—including supplies, equipment, advertising, office rent, utilities, insurance, continuing education, and other expenses that are directly related to performing your skills as an MT and promoting your business. If deductible, your business expenses can reduce your taxable income. This means you’ll owe less tax! Be sure to check out the IRS “Guide to Business Expense Resources” to get all of the deductions you’re allowed. To get you started, we included a few examples below.
-
Home Office Deductions: If you run your massage therapy business from home, you may qualify for the home office deduction. Allowable deductions include a portion of your rent, mortgage, utilities, and internet costs—those that are directly related to your home office space. See “Business Use of Home” for more information.
-
Mileage and Vehicle Expenses: If you drive to client homes or locations, you can deduct mileage or a portion of your vehicle expenses, including gas, maintenance, insurance, etc. Be sure to keep a log of all business-related travel and check irs.gov/tax-professionals/standard-mileage-rates for more specific information.
-
Continuing Education and Certifications: Courses, certifications, and workshops can be tax deductible when taken to maintain or improve your skills as a massage therapist or spa owner. See the IRS article, “Work-Related Education Expenses,” for more information.
-
Insurance Expenses: As a small business owner or solopreneur, your medical, dental, and other qualifying long-term care insurance coverage for yourself, your spouse, and your dependents may be covered, as well as your ABMP professional liability insurance, contents coverage insurance, etc. For more information, visit irs.gov/forms-pubs/about-form-7206.
-
Deduct Supplies and Equipment: Along with your other business expenses, the IRS allows you to deduct massage equipment like massage tables, chairs, or other tools—whether you purchase or lease this equipment. You may be able to deduct the purchase all at once or you may want to depreciate your equipment over several years. Your choice will depend on the cost and your accounting method. See irs.gov/publications/p538 for more information. Making a decision to take a full deduction or to depreciate applies to larger purchases like massage tables, chairs, furnishings, office equipment, and other pricey items. Check “What Small Business Owners Should Know About the Depreciation of Property Deduction” for guidance on which method is best for your bottom line.
-
Subscriptions and Software: Trade publications, journals, and magazines, as well as software subscriptions—and the software itself (including your tax software or download)—may be deductible as business expenses. Subscriptions to business management tools, such as booking software, accounting tools, and even client management systems, are considered business expenses and may also be deductible. Check the IRS “Guide to Business Expense Resources,” for greater detail on allowed business expenses.
2. Hire a Professional
If you’re not comfortable with the financial aspects of running your own business, hire a bookkeeper to track your income and expenses. This is an especially good idea when starting out as a solopreneur. Hiring a professional will make tax filing easier—and ensure you don’t miss out on any deductions!
3. Set Aside Money for Taxes
As a self-employed business owner, taxes are not automatically withheld from your income. Self-employment tax is your responsibility, so you’ll likely need to make quarterly estimated tax payments to the IRS. Or, if you have a spouse who is an employee of another company, you could have them increase the amount of taxes taken from their check to offset your earnings. A good rule is to set aside 20–30 percent of your income for taxes throughout the year. This will help you avoid unexpected tax-time surprises. And, again, consider consulting a tax professional since IRS laws can change frequently. Working with a tax professional who understands the specific deductions and credits available to small business owners and solo massage therapists can save you both time and money.
4. Plan for Retirement
As a small business owner, you can contribute to a Simplified Employee Pension (SEP) IRA or a solo 401(k) account to help you save for your retirement. Both account types allow for significant tax-deferred retirement savings. These contributions also reduce your taxable income for the year. Contributing to your retirement is a smart strategy to lower your taxes now while saving for your retirement! Get in the habit early. Make retirement account deposits automatic. Contributions to these plans are tax-deductible now—and your money grows until you withdraw it in retirement. Read the IRS article, “Retirement Plan Resources for Small Employers and Self-Employed,” for more on retirement planning and the tax ramifications for each account type.
5. Deduct Your Self-Employment Tax
As mentioned earlier, self-employed MTs or spa owners are responsible for paying both the employer and employee portion of Social Security and Medicare taxes. This tax is known as self-employment tax and is in addition to your income tax. Keep in mind, though: self-employment tax payments are a business deduction. Be sure to deduct half of your self-employment tax on your tax return to help reduce your taxable income. Read “What Are My Self-Employed Tax Obligations?” for more information on your self-employment tax obligations.
6. Consider How You Want To Do Business
Do you want to become a sole proprietorship, limited liability corporation (LLC), or a small business corporation, known as an S corporation (S corp.)? Many massage therapists start as sole proprietors, but as business grows, you might consider forming an LLC or electing S corp. status. Doing so can help protect personal assets and possibly reduce your self-employment taxes. An S corp. also allows you to pay yourself a salary and take additional earnings as dividends—potentially saving you money on Social Security and Medicare taxes. See the IRS article, “Business Structures,” to get the details on how to structure your business.
7. Confirm If You Need to Collect Retail Sales/Services Taxes
Depending on your state and local requirements, your massage therapy services may be subject to sales tax. Be sure you understand your state’s requirements for collecting and remitting sales tax. Also, keep in mind that the sale of any retail products like oils, lotions, or gift certificates may require you to collect sales tax too. For more information on sales tax collection, see your state’s website. Also, be sure to register your business with your state agency, if applicable.
8. Separate Your Finances
To avoid confusion, keep your personal and business expenses separate. Set up a separate business bank account and credit card. Doing so will make it easier to track your business expenses and ensure your personal finances remain separate from your professional activities. Keeping separate accounts also simplifies recordkeeping and ensures you don’t miss potential deductions. As a bonus, staying organized, tracking your expenses, and understanding specific tax can reduce your tax liability and increase your profitability. Again, consider working with a tax professional to ensure you’re taking full advantage of all the tax benefits available to small business owners in the massage therapy industry.
Tax Specifics for 2024–2025
For small business owners in the massage therapy field, effectively managing taxes is crucial to maximizing your profits and ensuring compliance. Following is information to help you navigate the complexities of this income tax season as a small business owner or solopreneur. For more in-depth 2024 information on the following topics and much more, see the IRS publication “Tax Time Guide 2025: Essentials Needed for Filing a 2024 Tax Return.”
Third-Party Payment Reporting Threshold
The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party payment processors. For the 2024 tax year, businesses receiving over $600 in gross payments through platforms like Venmo, PayPal, or online marketplaces (such as eBay and Etsy) will receive a Form 1099-K. The 1099-K form reports your total payments received, and you must accurately report this income on your tax return.
Increased Standard Deductions
For the 2024 tax year, the IRS increased standard deductions, providing tax relief to many taxpayers, including small business owners. This change allows for a higher deduction from taxable income, potentially lowering overall tax liability.
Enhanced Employer Pension Startup Credit
The SECURE Act 2.0 has expanded the pension startup credit for small businesses. Starting with the 2023 tax year, businesses with up to 50 employees can receive a tax credit covering 100 percent of administrative costs for starting a retirement plan. This is up from 50 percent previously. This incentive aims to encourage more small businesses to offer retirement benefits to their employees.
Energy Efficiency and Clean Energy Tax Credits
The Inflation Reduction Act offers several tax credits for small businesses investing in energy efficiency and clean energy. A few are listed below:
- Solar Investment Tax Credit. Businesses can receive a tax credit covering 30 percent of the cost of installing solar energy systems. Solar energy helps lower operating costs and protects against energy price volatility.
- Energy Efficiency Improvements. Tax credits are available for energy-efficient upgrades to commercial buildings, such as HVAC systems and lighting, with credits up to $5 per square foot.
- Clean Commercial Vehicle Credit. Businesses purchasing clean vehicles, including electric and fuel cell models, can receive tax credits covering 30 percent of the purchase cost, with no limit on the number of credits claimed.
Reporting Requirements for Online Sales
The IRS now requires taxpayers selling goods or services online to report their income accurately—especially with the lowered 1099-K reporting threshold ($600). This change aims to enforce tax compliance and ensure that all income is properly reported to the IRS. Online platforms like eBay, Etsy, and StubHub will issue 1099-K forms to more users under these new rules. In addition to the link provided at the beginning of this section, be sure to check irs.gov/businesses/gig-economy-tax-center for the most up-to-date IRS guidelines for reporting online sales.
Remember, staying informed about tax changes and proper tax planning are crucial components to complying with IRS directives. Knowing the tax law—even the basic rules—can positively affect your bottom line too. The more you know, the more you can save! So stay informed on IRS guidelines for small business and the self-employed at irs.gov/businesses/small-businesses-self-employed. Also consult a tax professional for personalized guidance on your specific tax reporting circumstances.
