I’m considered a small business owner during tax season. How should I handle my taxes?

Hi Money Minder,

I teach music lessons on the side through a small studio my buddy started. I don’t own any part of the studio. I bill my students directly with Square, not through the studio. On top of that, I have a full-time gig as a music teacher at a public school.

I’ve been told that even though I don’t own the studio, I’m considered a small business owner come tax time. So, should I be paying my taxes quarterly or just stash away 30-40% of my lesson dough each month and file all at once during tax season? I don’t know the exact number, but I’d say I make about an extra 10,000 a year from the lessons, and my public school salary is around 67,000 before taxes.

Not gonna lie, I’m not super savvy when it comes to finances. I also contribute to a 403b and an HSA, and I’m paying off student loans. Do these things make a difference when it’s tax season? Happy to spill any other info you might need!

Edit: Oh, I live in Texas!

Thanks for the help Money Minder,
Jazzed Musician

Response from THE MONEY MINDER:

Hello There,

First and foremost, it’s great that you are seeking advice on this matter and taking proactive steps to manage your finances effectively. Given your situation, you are indeed considered a small business owner for tax purposes due to your private music lessons. Since you do not receive taxes withheld from your lesson earnings, it is advisable to set aside a portion of your income each month to cover your tax liability. A good rule of thumb is to allocate around 30-40% of your lesson earnings towards taxes, but you may want to consult with a tax professional to determine the ideal percentage based on your specific income and deductions.

Considering your annual income from lessons is approximately $10,000, and your public school salary is around $67,000 before taxes, it may be prudent to make estimated quarterly tax payments to avoid any penalties or surprises during tax season. This will help you stay on top of your tax obligations and ensure that you have the necessary funds set aside for when taxes are due. Additionally, given that you contribute to a 403b, HSA, and have student loans, it is essential to consider how these factors may impact your overall tax situation.

As you mentioned living in Texas, it’s worth noting that Texas does not have a state income tax, which simplifies your tax obligations compared to residents of other states. However, federal taxes still apply, and it’s crucial to handle them appropriately. Keeping detailed records of your earnings, expenses, and contributions will also be beneficial when filing your taxes.

In summary, it’s advisable to start making estimated quarterly tax payments based on your total income from both your public school job and private music lessons. Consulting with a tax professional can provide personalized guidance tailored to your specific circumstances and ensure that you are fulfilling your tax obligations efficiently. By approaching your tax planning methodically and staying organized throughout the year, you can navigate tax season smoothly and avoid any potential issues. If you need further assistance or clarification, feel free to reach out for additional support.

Farewell from THE MONEY MINDER.