If you teach private lessons, the IRS wants to know about it. Generally speaking, any income you earn is taxable. However, since giving private lessons is considered a business, you also get to write off any of the expenses that you take on to pay for your private lesson business. In other words, you only pay taxes on your profits.
The Schedule C Form
Since you're technically a small-business owner, you will need to attach a Schedule C form to your tax return or, if you spend less than $5,000 on expenses and don't have employees, the easier-to-complete Schedule C-EZ form. Either allows you to report all of the money that you make from giving lessons and to subtract all of your expenses. You only will pay taxes on the money that is left over as profit.
Income from Lessons
When you have your own business, you usually can't count on your customers to keep track of how much money they spend with you. Instead, it's your responsibility to make a record of all of the money that you have made. You could use a receipt book that makes copies of receipts you give your customers, store the information in a spreadsheet or other computer file, or write everything you make down in a notebook. Regardless, you will need to know everything you made and be able to prove it if the IRS says that you left some payments out.
Expenses Giving Lessons
Much of the money that you spend on giving private lessons can be deductible, since according to the IRS you can write off ordinary and necessary business expenses. Some of the expenses that you may be able to deduct include the cost of a receipt book, what you spend to advertise your business and money that you spend for equipment you use to give private lessons. If you hold a lesson over coffee or lunch, you may even be able to write off half of the cost of that meal.
Once you have figured out your profit, you carry it over to your 1040 tax return. The money you make from giving lessons gets added into your other income and is used to determine how much tax you pay. If you make $400 or more in a year, you will also have to attach Schedule SE and pay self-employment tax. Self-employment tax is equivalent to what you and your employer pay in contributions for Social Security and Medicare at a regular job.
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