You signed the FDD, paid the initial franchise fee, built out two locations. Most CPAs straight-line it over 15 years and stop thinking. We aggregate the §199A QBI, expense the equipment, and split out leasehold improvements so the deduction actually shows up.
A franchise fee is a §197 intangible amortized over 15 years. Equipment is §179. Leasehold buildout is QIP. Membership signup promotions are marketing. Most franchise operators bucket everything as "startup" and miss six-figure deductions.
Initial franchise fee ($30K-$60K typical for fitness), territory rights, and trade name use are §197 intangibles amortized straight-line over 15 years. Royalty payments (typically 5-7% of revenue) are deducted as paid. We separate the up-front fee from ongoing royalties so each goes to the right line.
IRC §197(d)(1)(F) franchise; §197(a) 15-yr amortizationCardio decks, racks, plates, kettlebells, rowers, bikes, treadmills, sound systems, POS, member-check-in kiosks, and security cameras qualify for §179 up to $1,160,000 for 2024 plus 60% bonus on overflow. A new-location $180K equipment build can be ~95% expensed in year one.
IRC §179(b); §168(k); Rev. Proc. 2023-34The interior buildout (rubber flooring, mirrored walls, locker rooms, plumbing for showers, HVAC) is Qualified Improvement Property: 15-year MACRS recovery and 60% bonus depreciation eligible for 2024. We segregate the buildout invoice so QIP-eligible portion gets expensed immediately instead of 39 years.
IRC §168(e)(6), §168(k); CARES Act §2307Each location is often a separate LLC for liability. For §199A purposes you can elect to aggregate them so wage base and UBIA totals combine. This matters above $383,900 MFJ where the W-2-wage limitation kicks in. Done wrong, the QBI deduction shrinks per location.
Treas. Reg. §1.199A-4 aggregation; §199A(b)(2)Free first-month, referral bonus, T-shirts, branded shaker bottles, transformation contests, and influencer collab fees are ordinary marketing expenses, not promotional concessions to revenue. We book them as advertising (§162) so they hit the deduction line cleanly without distorting MRR analysis.
IRC §162(a); Rev. Rul. 92-80; §274 (50% meals not applicable)Most fitness franchises are LLCs taxed as S-Corps once they clear $150K of profit. Reasonable comp for an owner who personally coaches classes is higher than one who only manages. We benchmark against IDEA Health and Fitness Association and BLS data so the wage holds up if challenged.
IRC §1402(a); Watson v. US 668 F.3d 1008; Rev. Rul. 59-2212-location Orangetheory franchise, S-Corp, $1.4M revenue 2024, opened the second box mid-year. We aggregated both locations for §199A, segregated the $260K buildout into QIP + §1245 personal property, §179-expensed $140K of equipment, and elected to amortize the $60K initial franchise fee under §197 (separate from the $98K of royalty payments).
$21,000 savedFederal savings on §179 equipment + bonus QIP + correct §199A aggregation. Royalty payments now flow as current-year §162 deduction instead of getting tangled with the §197 amortization schedule.