**The information provided by this web site is only intended to be general summary of information to the public and is not intended to take the place of either the written law or regulations. Before using any of the information supplied on this site, please consult your professional tax adviser.
Piano Teachers…It’s that time of the year…time to complete your taxes as a small business owner! Being self-employed can be a double-edged sword for most of us. On one hand, we have the freedom and flexibility to run our studio as we wish. We can teach students up to our own time capacity, and we can control the hours we want to work. On the other hand, most music teachers do not have a MBA, business experience, or experience in working in a business environment. First and foremost, we are teachers. We have the heart of a teacher, but we need to have the practicality and good sense of a small business owner as well.
These are the best tax tips that I’ve picked up from being self-employed for the past 24 years:
-Use good accounting software to keep track of your business: I prefer Quickbooks for Mac by Intuit.
The best things about Quickbooks are:
-Email invoicing-Say goodbye to buying stamps to snail-mail your invoices: I create recurring monthly invoices on Quickbooks and send out the whole group with a click of one button!
-Keep up-to-Date balances for each piano student: I can pull up a “CustomerBalance Summery” report with one click and see who has a balance that can include monthly tuition, event fees, late fees, etc.
-Online banking setup: Years ago, I used to go through my bank accounts and enter each item. With online banking, I can download the monthly bank statements for my bank accounts and credit cards in the Quickbooks .QBO format and easily enter each item with it’s category. What a time-saver! It's also easy to track different types of payments, such a Square, Stripe, and Paypal.
-Built-in tax reports: I started out using Quicken for my personal accounting, but soon felt that my business needs outgrew it. I used Quicken for many years to keep all of my personal accounts separate from my business accounts. It’s a but of double-duty in dividing up the entries of each account in separate software. However, if you do this throughout the year, it’s a snap to complete your taxes come tax-time.
-Unfortunately, Quickbooks Online doesn’t work with the Quickbooks for Mac at this time. I've stuck to the desktop version, because I like the breadth of reports, such as YTD Comparison of Profit Vs. Loss. However, I would love the mobility of being able to enter in receipts on the go. I could convert my file to the online version, and then pay the monthly fee to use only the online version with the QB App, but I'm not completely convinced that this is the best route for me at this time. Click here for a great article I found comparing Quickbooks Online and Desktop editions. You can take Quickbooks Online for a test drive!
-Must-have reports to print out for tax time:
-Profit and Loss report for that tax year end
-Income by Customer Summary
-Income by Customer Detail
-Expenses by Vendor Summary
-Expenses by Vendor Detail.
-Income Tax Summary
-Income Tax Detail
-Keep all of your receipts organized: Each year, I print out labels that I set up for each tax category for my piano studio. Every month, I file the receipts into each file folder. Also include your utility statements and bank statements, business licenses, and business liability insurance for that year. I like to keep my tax records for each year for 8 years.
-Budget and Receipts tracker for iphone: Keep on budget and enter your purchasing as you stand in the check-out line the You Need a Budget app for iphone. I have been using YNABkeep on budget and it’s especially helpful in logging cash purchases. I’m using this app instead of my Quicken account for my personal expenses.
-Easy Mileage Tracker: I always saved figuring out business for last because it was so time consuming. I use Milebug for iPhone to keep track of mileage that requires no writing! Just click on the saved preset destinations and click on the current mileage. Milebug will automatically put in the date and time. I maintain two piano studios and can deduct the driving mileage to and from these piano studios and also to music teachers meetings, competitions, and events. Sync Milebug with your computer and you can also email reports to yourself as a backup.
-Contributions: Don’t forget to include your contributions to charitable organizations! You will need to itemize each item and attach it to the receipt from the organization. You can find valuation guides for Salvation Army and Goodwill.
-Exclusive teaching/storage space: Piano teachers are allowed to deduct a portion of our home that is exclusively used for teaching piano students or storing piano supplies. This square footage is calculated as a percentage of the total square footage of your home.
-Utilities: The percentage of your studio use is used can be used to calculate utilities that are used for your business at home also, such as electricity, phone, internet, etc.
-Music/teaching equipment: Did you update your studio with a new pianoor new computer this year? You can depreciate its value over its useful life.
Hire a qualified tax attorney to help with all of your tax needs. I think it’s worth the investment to hire a qualified tax attorney, preferable one with a masters in tax law and is also an attorney who could represent you in court, should you get audited and need to go to court. The expense of hiring a professional is tax deductible for the next year. It's great to have a specialist to ask tax questions throughout the year and will sleep better knowing your taxes have been properly filed!
-Start a SEP or ROTH IRA retire account! Most piano teachers that teach from home don’t have a built-in retirement account, as you would have from your employer. It’s important to think about the future and set one up for yourself! ROTH IRAS are a must for all who qualify! because you pay taxes before you fund the account, but you won’t have to pay taxes on the account when you withdraw it at retirement! SEP IRAS are great because it helps us to save for retirement, and may help to offset some of your estimated taxes.
Time is ticking…April 15th is just around the corner! Hope that 2015 was a successful and profitable year for everyone!