Now that tax day has finally come and gone, many private lesson teachers are experiencing a sense of relief. Now that the next tax year has begun, it is important to consider your earnings for the coming year now, in order to avoid a big tax bill in the future.
Estimating income is difficult. This is especially true if your work is variable, and such os the case with private lesson teaching. Luckily, at this juncture in the year you most likely have enough information to get a realistic idea of your earnings for the coming year. Doing this now will save you the headache of substantial taxes owed next April.
If you are teaching summer lessons you most likely know your studio size for this season. Calculate your earnings for the summer based on weeks teaching and set it aside.
Next, determine your studio size for the school year. Will you be taking on more new students, than students graduating lessons or quitting band? Will you be adding any new schools or dropping schools from your schedule? Will there be any changes in the lesson rate? Now you can use this to determine income for your fall teaching. I assume a student will never miss a lesson for this excercise. I would rather overestimate now than underestimate and have to pay later. Combine this with your summer earnings, as well as money you have already made from January first to now,
Once you have arrived at this number it is important to also take into consideration any other income streams you may have, such as gigs or clinics, and include these if possible.
Lastly, take a look at your deductions from previous year. Are any of these no longer applicable for the coming year? This includes educational credits, or the witting off of one time purchases such as computers, tablets, or instruments. If you are losing a few of these big deductions you should be prepared to pay more taxes.
On the flip side if you see any expenses rising, this will increase your deductions. For example, your health insurance cost could be going up, or you may anticipate driving more work based miles.
You can now use your previous tax return as a model, by plugging in your new estimated income and making the same or revised deductions. You can also use this to determine self employment tax. Be sure to consult tax tables of thee has been a drastic change in income either way, as your tax bracket may now be altered. At the end of this exercise you will have an estimate on what you will owe next year, and can send in your quarterly vouchers accordingly.
This is an important procedure, and will keep you from a surprise bill next April.