Update: I’ve created a handy Income and Tax Calculator to help you calculate how much you need to earn to make a living as a music teacher. This post is still helpful to understand what the calculator is doing (especially when it comes to taxes), but I highly recommend the calculator to take care of the math.
New music teachers and those wanting to make the leap to full-time teaching often want to know how much they need to earn to make a living as a music teacher. The simple (and very unhelpful) answer is “it depends.”
It depends on where you live, your family situation, personal factors (like health), and the lifestyle you want. It’s not difficult to figure out, though. Here’s how:
1. Add up your living and business expenses
Write down everything you can think of that you spend money on. Rent, groceries, utilities, insurance, savings for gifts, etc. This downloadable worksheet can help you out. You might want to keep two lists: one of the absolute essentials for survival and one that represents your ideal lifestyle.
2. List your financial goals
Whether it’s paying off student loans early or saving for a trip abroad, you’re way more likely to reach your financial goals if you budget for them in advance.
Once you’ve determined your financial goals, figure out the amount you need to save each month to achieve them. Some goals necessities even during the lean times (add these to your “Essentials” list), while others can be minimized or put on hold until your income grows (add these goals to your “Ideal” list).
3. Don’t forget taxes
In the US, a self-employed musician will generally pay the following taxes:
- Federal Income Tax
The tax rate for federal taxes depends on your income level. You can check out the 2016 tax brackets here.
- Self Employment Tax
Self-employment taxes are a flat 15.3 percent of your net business income (aka “profit”).
- State and local taxes
These vary widely by state and locality. Search the Internet for “<YOURSTATE> income tax rate” to find more information.
Figuring Out Your Taxable Income
One of the perks of being self-employed is that you can deduct your business expenses from your total income to reduce your taxable income. You are probably also eligible for a personal exemption, which will decrease it even more. The calculation will look like this:
Total Income – Business Expenses – Personal Exemptions = Taxable Income
If you have a good estimate of your business expenses, you can use that figure, otherwise you can just use the IRS’s Standard Deduction, which is $6,300 for single taxpayers. (Tip: You should use whichever gives you the higher deduction.)
You can take a Personal Exemption, unless you are being claimed as a dependent on someone else’s taxes (like if you’re a student and a parent still claims you as an exemption on their taxes). For the 2016 tax year, this exemption is $4,050. You can check the rates here.
So, with this added information, the calculation would be:
Total Income – $6,300 – $4,050 = Taxable Income
That final Taxable Income number is the one you use to choose your tax bracket.
Update: Don’t like math? Use my Income and Tax Calculator to have a robot do it for you.
Simply enter your data and the calculator will figure out your monthly expenses, estimated federal income and self-employment taxes, what you should be saving each month to pay those taxes, and how much you need to earn each month/year to support your lifestyle.
I can tell you’re excited. As you should be. It is an awesome calculator.
4. Can I make a living as a music teacher?
When you add up all the numbers you figured out above, the number you’re left with is a very rough estimate* of the the amount you need to earn to make a living as a self-employed music teacher.
How are you doing? Does it seem like an impossible goal? Just because you’re not there today doesn’t mean it’s out of reach. This is just the kind of goal I help music teachers achieve.
In the next post, we’ll use that income number to determine how much you need to charge for music lessons to reach that financial benchmark.
*Disclaimer: I am not a tax professional. I am not a financial advisor. I speak from my personal experience and a weird interest in trying to better understand the tax code. Everyone’s situation is different. Consult a certified tax professional to discuss the particulars of your situation.