Online tutoring is a very satisfying career with the potential to be lucrative as well. As a freelancer, you must understand how taxes work for independent contractors and which tax breaks you qualify for with your tutoring business.
This article discusses tax basics for tutors, the top five tax deductions to look out for, and tips to help navigate tax season so you don’t make common mistakes and miss out on savings.
Tax Basics for Tutors
As a freelance tutor, you will fall under the category ‘self-employed’ when you file your taxes. You must also decide whether to file as a DBA or an LLC. Each of these comes with different benefits and drawbacks. However, the most significant difference is that an LLC will protect your personal assets because your business is considered a separate entity from you.
Regardless of which business type you choose, you must stay organized and track all your expenses if you want to save the most on your taxes. You don’t want to overlook several helpful deductions come tax season, so keeping a detailed file of every business expense will save you time, money, and headaches in the long run.
So what deductions should you keep track of as a freelance tutor? Read on and find out!
Top Tax Deductions for Tutors
Anything that contributes to running or growing your tutoring business can be written off to reduce your taxable income. It is imperative to keep a detailed record of every business expense in order to file your taxes correctly and save the most money. Below are five important deductions to keep track of so you don’t overpay on your taxes.
Deduction 1: Business Equipment and Supplies
Any equipment associated with the daily operation of your business can be a write-off. Save your receipts and keep a spreadsheet that documents any equipment or supplies you purchase for your tutoring business.
Some common examples of supplies and equipment you may use as a tutor include the following.
- Technology (webcam, computer, recording device, software apps, etc.)
- Office furniture (desk, chairs, filing cabinets, storage, etc.)
- Office supplies (pens, paper, markers, calendars/planners, stamps, etc.)
- Marketing supplies (business cards, flyers, digital or print ads, etc.)
Deduction 2: Home Office
You are allowed to deduct a small percentage of your home if it is regularly used for the sole purpose of running your business. In addition to your home office, you may be eligible to write off a portion of your phone and internet expenses if your company relies heavily on them to function. If you operate your tutoring business from home and live in the US, the IRS offers a Simplified Home Office Deduction to simplify calculations.
Deduction 3: Training and Professional Development
Continuing education is an essential part of running a successful tutoring business. Like teachers, continuing education for tutors helps you stay on top of education trends and best practices. Any of the following may be considered a tax write-off for your business.
- Subject or tutoring-related conferences, seminars, or webinars
- Books and other professional development materials
- Subscriptions to subject or tutoring-related publications
- Transportation, lodging, and other expenses associated with getting to a conference or seminar.
- Specific deductions (in the US) for your continued education which include Education Tax Credit, American Opportunity Credit, Lifetime Learning Credit
Deduction 4: Licensing Fees
Registering your business and obtaining a business license requires a licensing fee. You can write this fee off and deduct it from your taxable income. This also applies to any price you pay for your tutoring website and domain name.
Deduction 5: Travel Expenses
Travel expenses are one of the most common deductions to get overlooked, but they can save a lot on your taxes. Any time you travel to a student or any business-related event or training, you can write off the expenses associated with that activity. Some examples of travel expenses you can write off include the following.
- Meals purchased in the course of travel to a training or business event.
- Your mileage to and from a business errand, training, or tutoring session
- Bus or taxi fees to and from a business errand, training, or tutoring session
To track your travel expenses accurately, you can keep a log in your vehicle and detail each business-related trip, or you can download an app on your phone that will add your mileage. Keeping receipts and statements that document your business-related expenses is also important.
Is Tutoring Tax Deductible for Your Clients? Common Misconceptions
Many of your clients may wonder if your tutoring services are tax deductible. If you provide your services within the US, tutoring is not considered tax-deductible, but there is one exception. Suppose you are tutoring a student with a recognized disability (like ADHD, dyslexia, or autism). In that case, their family may be able to deduct the cost of tutoring as it is a service to alleviate some of the effects of their child’s disability.
Your clients will need to check the specific tax laws in your region to determine if tutoring is an allowable write-off for their families.
Navigating the Tax Season as a Self-Employed Tutor
Navigating your taxes as a self-employed tutor can be manageable. As long as you remember some key points, you will keep things organized and maximize your savings.
Key points to remember during the tax filing season
Educating yourself is the best thing you can do to prepare for tax season. There are many articles out there that provide advice and awareness about the tax laws that apply to you specifically. If you educate yourself and make an effort to stay organized and honest, you will be absolutely fine. You can do the following to help you feel more confident as you enter tax season.
- Read any pertinent articles from the IRS, or other tax entity, that outline your tax responsibilities and deductions.
- Keep a detailed record and paper trail of your business-related expenses.
- Stay on top of your quarterly payments.
- When in doubt, ask. There are professionals out there who can help.
How to avoid common tax errors for self-employed tutors
The worst thing you can do is get to tax season and realize you don’t have enough money to pay what you owe or have missed a deadline. Use these tips to help you stay ahead of the ball regarding your business taxes.
- Put all tax deadlines in your calendar
- Calculate your estimated tax ahead of time
- Save money for your taxes
- Keep an accurate spreadsheet of your income and expenses
- Don’t cut corners to save money. It may cost you a lot more in the long run.
Advantages of using a tax professional
As your business grows and you start to earn more and possibly hire others, it may be beneficial to hire a tax professional to help you stay compliant. Some of the advantages of hiring a tax professional include the following.
- Saves you time
- Ensures efficiency and accuracy
- They have more knowledge of write-offs and benefits
- They can provide advice and support
- You will sleep better at night
Tutoring is a gratifying career that positively impacts others. Receiving the support you need to provide the best tutoring possible is smart business and will prevent burnout. Whether hiring a tax professional to help you stay compliant or finding CRM software to help you manage your administrative tasks, there are plenty of options to support your growth and well-being.
Practice offers a wide range of features to set you up for success. Try it for free and see your client relationships flourish.