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If you are a US citizen, April 15 is a popular deadline for you. If you don't know what we are talking about, April 15 is Tax Day or the deadline for locals to file their taxes.
Like other hard-working Americans, tutors are also liable to file taxes. However, as freelance tutors, they fall under the list of people categorized as self-employed. Unless you want to outsource your taxes to a tax professional, you will have to file your taxes as a self-employed person.
If you are new to the tutoring profession and want to file taxes as a tutor, Superprof will make the task easier.
The good news here is that private tutors are in greater demand than ever before. No matter what your qualifications and experiences may be, it’s possible to find a tutoring job for your subject and skill, as long as you look in the right place.
Remember, when you take on private tutoring jobs, you are considered a self-employed sole trader, and you’ll have to pay taxes accordingly.
Let’s learn more.
Determine Your Employment Status
If you are running a tutoring business and not working under any employer, you are billed as self-employed. You may even work a full day job but still count as a self-employed tutor.
According to IRS (Internal Revenue Service), you fall under the 1099 independent contractor category as a self-employed individual.
Since this makes you an independent contractor, no-one will withhold your taxes or make deductions for you. You will have to do that yourself for any private tutoring jobs or online teaching jobs.
Once you are ready to become a tutor and set up your business, make sure you understand how to motivate your students to help them become the best they can be.
Ask Clients For 1099 Forms
In some situations, you might have to collect and submit 1099-MISC forms from your clients. This form is only applicable to clients who are business entities, like tutoring academies or schools, and you've collected more than $600 annually.
But if your client is not a business entity, like a student or a parent, you will not need to submit the 1099-MISC.
Talk to your clients before starting any tutoring jobs and tell them that you will need to collect completed 1099-MISC forms.
Keep Track Of Your Business Expenses
Independent contractors can have their business expenses waived off, so it's crucial to keep receipts of all your business expenses. Expenses will include all material costs, marketing costs, business phone, and internet bill, and other miscellaneous costs.
Set Aside Some Money
Since you manage your taxes on your own, it is wise to keep aside some money from your earnings for potential tax liabilities. The general rule for self-employed independent contractors is to keep aside 25-30 percent of each paycheck. For clarity, you can save this money in a separate bank account.
Even if you have enough to pay your estimated taxes, it is still wise to have a safe amount set aside for any unexpected emergencies or dry spells in your online teaching jobs.
Make Quarterly Payments to the IRS
The IRS requires independent contractors to make quarterly tax payments if they pay more than $1000 in taxes annually. If your annual earnings are less than $400, you are not liable to make quarterly tax payments.
You are due for four payments on April 15, June 15, September 15, and January 15. Be sure to pay on time, as overdue payments can levy penalty interest on you.
An excellent way to estimate taxes is to look at your previous year's tax records.
Freelance tutors should do their tax paperwork well ahead of time, as you do not have anyone else to help you out. Make sure to complete all your paperwork well before April 15.
Now that you have figured out 1099-forms and how to make quarterly tax payments, let's talk a bit about tax returns.
As independent contractors, freelance tutors can claim tax returns on many business-related deductions. Be sure to keep receipts and records handy on the rare chance that the IRS wants to audit you.
As a freelance tutor, you should consider these five deductions:
Your Office
If you conduct all your tutoring at home, you would be eligible for a home office deduction. However, there are a few considerations to keep in mind:
Your home office must be for most of your tutoring business and used exclusively for business purposes. You cannot claim the furniture and spaces you own for your personal use for business purposes.
The IRS provides options for calculating your home office deductions. For more information, click here.
If you're using a co-working office space for your tutoring jobs, you can deduct 100 percent of your office rent off of your taxes.
Transportation
As a self-employed tutor, you can deduct the cost of transportation if that was for business purposes. This does not cover the cost of commuting to and fro from your designated workplace.
If you use your own vehicle for business purposes, you can use the exact costs incurred in travel, or you can use a standard rate.
Business materials
You can deduct any materials from your taxes that you use directly in your business, such as stationery, printing materials, and tutoring paraphernalia.
You can also include the costs incurred in marketing and advertising costs and education software or computer equipment you use for your student's aid.
Phone and internet bills
Any phone or internet bills that you incurred due to your business are eligible to be included in your tax deductions. Part of your phone and internet bills that are directly used for your business operations are deducted.
Other Costs
You can even deduct some other miscellaneous costs directly related to your business. This may include meals that you paid for while tutoring a client or meeting a client. This will not cover any extravagant meals, and you must have been present there for the meal.
Now that you've gotten an idea on your eligible tax deductions and what it means to pay taxes let us talk about the process of filing your taxes
Filing Annual Returns
When it comes to filing tax returns, you need to determine which IRS forms to apply for your tutoring jobs and filing them before their due date.
If your expenses exceed $5000 annually, use the Schedule C form to declare your income. You can visit the IRS website to learn how to fill out the form.
If your expenses are below $5000 annually, go for the Schedule C-EZ form.
In both cases, however, self-employed tutors will need to fill out the Schedule SE, known as Form 1040, to evaluate any Social Security taxed levied on them for the year.
Filing Quarterly Returns
Instead of paying a large sum on the annual Tax Day, freelance tutors should pay their withholding taxes on a quarterly arrangement four times in the year.
For this procedure, you are supposed to use the Form 1040-ES to calculate your quarterly taxes.
The dates for each quarterly tax payment are:
- April 15
- June 15
- September 15
- January 15
If this is your first time as a filer, you will need to estimate your expected earnings and calculate your taxes accordingly. If you have paid your taxes before, you can use the estimate of your previous income.
For more information, consult the IRS resource for self-employed independent contractors.
New DBS replaces CRBS - See the summary of the changes
Tips
For self-employed tutors, Superprof would like to offer a few extra snippets of tax advice.
As an independent contractor, you will not have access to a pension or health insurance from an employer, so you might want to consider making your own arrangements.
Retirement Accounts
Since you are your own employer as a freelance tutor, you can set up your own 401(k) plan. As opposed to traditional IRA plans, you can defer a more significant amount of your pre-tax earnings into your 401(k) plan. Also, you can add 25 percent of your annual salary to the savings.
If you do not want to involve yourself in all the administrative paperwork of a 401(k) plan, opt for a simple IRA plan. This plan is easy for freelance tutors to manage administratively.
Health Savings
As a freelance tutor, you will have to make arrangements for your own health insurance. We at Superprof would advise you to set aside enough income for a health plan.
You can save on health-related costs by deferring your income to a Health Savings Account. The money in a Health Savings Account can even earn you interest and rolls over year by year.
A Health Savings Account is an excellent way for self-employed tutors to maximize their savings and pay less in taxes.
Getting Help
If you feel that filing your taxes is too complicated a process for you, it is advisable to hire an accountant's services.
Are you a home tutor or an aspiring one? Check out some articles that may be of interest to you below:
How to start giving one-to-one private tuition
The platform that connects tutors and students
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Thank you – this was very helpful for me as a first-time filer!
I appreciate the article very much because it is tailored for tutors.
Thank you for all the pointers.
If I tutor students on the internet outside my home state of New Mexico, do I still have to pay Use or sales taxes on that income? I do pay Use taxes on my New Mexico students, but not on students I Zoom with in other states. I just don’t want to find out that Use tax laws may change.
Thanks so much! – Jan
Hello Jan, thanks for the message. Please send us a message at hey@superprof.com and we will try our best to assist you!