Teaching private lessons is taxable income according to the IRS. If you are not employed by another person, you are considered self-employed for tax purposes. While there is some extra paperwork involved with self-employment and filing taxes, there are also benefits as well. Whether you’re paid in cash, check or direct deposit, it isn’t too difficult to file and there’s plenty of information available to help you navigate the ins and outs of claiming money made by teaching private lessons.
Filling out a Schedule C
When you go to file taxes, you will be doing so as a self-employed taxpayer. This means that likely no taxes were withheld from the money you earned. Even if you’re paid in cash, you still need to keep an accurate accounting and record of all income received for reporting to the IRS at tax time. Once you net more than $400 a year teaching private lessons, the IRS requires you to file a return. To file your return and report this income, you will need to use Form 1040 and fill out Schedule C. Schedule C, "Profit or Loss From Business (Sole Proprietorship)," is used to report any income and losses you had during the year in the course of being self-employed.
There are five parts to the Schedule C. For Part I of Schedule C, you must report all income you received from teaching private lessons to calculate your gross profit. In Part II, subtract your business expenses from your gross profit to determine your net profit or loss. This is reported on your income tax return. Complete Parts III – V only if you must buy inventory, claim deductions for vehicle upkeep and expenses or if you incur other expenses that you could not list in Part II.
Am I Responsible for FICA Taxes?
As a sole proprietorship, you are responsible for paying the self-employed equivalent of the FICA tax, the SECA taxes that cover Social Security and Medicare contributions. Also known as Self-Employment Contributions Act taxes, SECA taxes are similar to the mandatory payroll FICA taxes that must be deducted from a worker’s paycheck. Because you are self-employed, you have pay these taxes yourself by way of the self-employment tax. To do this, you must also fill out a Schedule SE, in addition to Schedule C.
Also found on Form 1040, Schedule SE determines what you owe in SECA taxes for the year if your net was more than $400 in income. Although you have to pay self-employment tax, half of this tax is deductible from your income on Form 1040, line 27. You can either pay these taxes on your return, or through quarterly estimated tax payments on Form 1040-ES, "Estimated Tax for Individuals." The IRS’ website has detailed information regarding who needs to file Form 1040-ES, and it never hurts to consult with a qualified tax professional.
Deducting Business Expenses and Costs
The list of expenses you’re able to deduct on your tax return is substantial, and these deductions reduce the amount of taxable income you have. For instance, if you make $80,000 teaching private lessons, and you have $15,000 in qualifying business expenses, your taxable income is now $65,000. Depending upon how many write-offs you are eligible to take, you could find yourself in a lower tax bracket. These expenses vary by industry and other criteria; however, many are routine expenses that nearly all self-employed taxpayers have. Costs of advertising, travel, entertaining clients and vehicle expenses are among the many deductions self-employed and independent contractors can claim.
Keep meticulous records of expenses such as meal receipts, airline bookings, vehicle mileage journals and any other proof of business expense deductions you plan to claim. In the event the IRS examines your return more closely, you will be glad you kept such thorough records.
- TurboTax: What Is a Schedule C IRS form?
- FitSmallBusiness: How to Complete Schedule C – Profit and Loss From a Business
- IRS: Self-Employed Individuals Tax Center
- TurboTax: What is IRS Form 1040-ES: Estimated Tax for Individuals?
- Quickbooks: Complete List of Self-Employed Expenses and Tax Deductions
- TurboTax: The Self-Employment Tax