Business Tips and Tax Strategies for the Independent Music Teacher

This post provides resource links for my presentation entitled Establishing a Private Teaching Studio: Business Tips and Tax Strategies for the Independent Music Teacher, most recently presented on September 28, 2013 at the Florida Collegiate NAfME State Conference in Lakeland, Florida.

Growing Your Business

• Advertising
    – Print, Social Media, Online advertising
    – Web site
    – Brochure, Business cards
• Music stores
    – Get to know the owners, buy reeds, music
    – Eventually you will want them to stock music for your students
• Offer free clinics to schools
• Offer incentives to current students for referrals
• Perform, network
    – Play in a local concert series or library
    – Play in churches, get to know music directors
    – Make contact with school music directors
    – Perform in the Community Band/Orchestra/Chorus

Business Model

• Sole proprietorship.  One owner--you.
• Business name = Your name.  You can register a dba with your local government if you want to operate under an assumed name ("Bob's 39th Street Music Academy").  Most people just use their own name.
• Cash accounting
• Fiscal year (calendar year)
• No inventory
• All investment is “At risk”

The above items are all called for on the various tax forms.  Choose these options unless you have a compelling reason to make another choice.  The listed options are the correct ones for a service business like music teaching and performing.

Deductions and where to declare them

Schedule C

• Advertising: print ads, web sites, business cards, brochure design/printing
• Car expenses: mileage, tolls
• Depreciation: instruments
• Insurance: instrument
• Legal and Professional Services: collaborative musicians, accountants
• Office expense: paper, pens, tape, envelopes, printer toner…
• Repairs: instrument, computer
• Supplies: Music, reeds, strings, valve oil, rosin, books, tools, tuners, CDs, music downloads...
• Travel: hotel, meals, entertainment expenses
• Other:
    – Concert tickets
    – Association dues (MTNA, NAfME, CMS, NACWPI, NASA, ITG, IHS, NFA...)
    – Union dues
    – Postage
    – Costumes
    – Computers (restrictions apply)
    – (Phone--must be able to show proof of percentage of business use--phone numbers/minutes)
    –  Web hosting fees, domain name registration (but not Internet service provider costs)
• Use of room in your home
    – Exclusive use
    – Percentage of rent, utilities

You do not have to teach in your home for an office space to be deductible.  It just has to be a dedicated room.  One huge advantage of a home office: all your driving to other teaching/performing locations is tax deductible.  Without a home office, you cannot deduct the trips to and from home (commuting miles).

Form 1040 - Adjustments to Income

• Qualified Performing artist expenses
• Moving expenses
• Percentage of the Self-Employment tax
• Retirement contributions (SEP, SIMPLE, etc.)
• Health insurance
• IRA
• Student loan interest
• Tuition, fees

Form 1040 - Other credits

• Standard deduction
• Exemption
• Education Credits 

Deductions reduce your tax liability considerably--up to 28% of the cost of items deducted.  So $4000 in deductions could save you over $1000.  Another way of thinking about this: you get a 23 or 28 percent discount on any music-related item you buy!  Keep careful records of your expenses and you can save thousands of dollars per year.
 

Tax forms you will need to file

Form 1040 - basic tax return form***
Schedule C - to report self-employed income
Schedule SE  - to pay the employer's portion of Social Security and Medicare taxes**
Form 8829 - if you claim a home office deduction
Form 4562 - if you claim a deduction for an instrument or computer
Form 1040-ES - for paying quarterly estimated taxes

** Note: if your taxable SE income (after deductions) is under $400 you are not required to pay SE tax. However, it will benefit you to declare enough income to pay some self-employment tax each year.  Your eligibility for Social Security benefits is based on the number of years you have been paying into to it, as well as your total salary.  A small tax payment now will earn you a year of eligibility and can be very valuable when you retire. (If you contribute to Social Security and Medicare through deductions from another job, you won't need to worry about this,)

 *** Negative income (declaring more deductions than you have in income) can offset income from another job.  However, if you continually declare a loss from your self-employed business, the IRS may decide that this is just a hobby and disallow all of your deductions.
 

IRS Publications for small business

Self-Employed Individuals Tax Center
    http://www.irs.gov/Individuals/Self-Employed
Tax Guide for Small Business 
    http://www.irs.gov/pub/irs-pdf/p334.pdf
Starting a Business and Keeping Records 
    http://www.irs.gov/pub/irs-pdf/p583.pdf
IRS Tax Calendar for Small Businesses and Self-Employed 
    http://www.irs.gov/pub/irs-pdf/p1518.pdf
Business Use of Your Home 
    http://www.irs.gov/pub/irs-pdf/p587.pdf
Retirement Plans for Small Business 
    http://www.irs.gov/pub/irs-pdf/p560.pdf
SEP Retirement Plans for Small Businesses 
    http://www.irs.gov/pub/irs-pdf/p4333.pdf
Instructions for Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)   
    http://www.irs.gov/pub/irs-pdf/i1040sc.pdf
Business Expenses 
    http://www.irs.gov/pub/irs-pdf/p535.pdf
Miscellaneous Deductions 
    http://www.irs.gov/pub/irs-pdf/p529.pdf
How to Depreciate Property 
    http://www.irs.gov/pub/irs-pdf/p946.pdf
Depreciation and Amortization 
    http://www.irs.gov/pub/irs-pdf/i4562.pdf  
Information on Schedule C income and Schedule SE tax
    click here to link   
Information on Estimated Tax payments
    http://www.irs.gov/pub/irs-pdf/f1040es.pdf 

Other Resources

"Establishing a Private Studio"  New England Conservatory Career Services Center
http://necmusic.edu/pdf/careerservices/Career_Services_Establishing_A_Private_Teaching_Studio.pdf

Music Teachers Helper, Teachers' Blog
(Studio management software site.  The blog is good.  I don't know anything about the software.)
http://www.musicteachershelper.com/blog/

Sample Registration form / Studio policy / Fee schedule
http://www.happymusicstudio.com/pdfs/Private_Registration_Form.pdf

 McKnight, Michael. Exploring the Private Music Studio: Problems Faced by Teachers in Attempting to Quantify the Success of Teaching Theory in Private Lessons through One Method as Opposed to Another. Master's Thesis. University of North Texas, 2006.
http://digital.library.unt.edu/ark:/67531/metadc5356/

Tips from Piano Teachers
http://www.mtna.org/member-resources/teaching-tips/studio-operations/

MTNA 
    http://mtna.org/

Internal Revenue Service 
    http://www.irs.gov/
 
Small Business Administration 
    http://www.sba.gov/