Transcript: 159 – 159 – Tax Prep Service for Music Teachers – Q&A with Charles and Andrea
Transcript for 159 – Tax Prep Service for Music Teachers – Q&A with Charles and Andrea
[00:00:00] Andrea: Hey, it’s Andrea with Music Studio Startup, the podcast about the business of teaching music. Learn from the startup stories of music teachers who are doing incredible things with their studios. Be inspired by creative musicians who are branching out and thriving as entrepreneurs. Be empowered by the insights of experts who will help you grow your own studio.
[00:00:20] Let’s get started.
[00:00:21] Hi Charles, welcome back to the podcast. So last week we announced that we are combining forces this year and offering tax prep and accounting services for music teachers. And in just the few days since that podcast episode went live, we’ve gotten lots of questions, so thank you for jumping back on the mic today, and we’re just going to address some of these questions.
[00:00:41] So the first question, and we talked about this a little bit in episode 158, so you can go back to that, but just do I need to file taxes? And I think your answer there was probably, even if you’ve made a loss this year, probably. So, we’ll link up to episode 158 so everyone can hear more about that.
[00:00:58] Second question, follow up to that is, what are my options for filing taxes? Do I need to have a CPA?
[00:01:03] Charles Harris: Great question. And the short answer is no, you do not need a CPA. There are a lot of different options here. You can go through TurboTax is probably the most famous option. And that works perfectly fine.
[00:01:15] You can also go through a CPA. You can go through something called an EA as well. That’s another designation for people filing taxes. The big thing that I always point out is you are welcome to do this on your own. I encourage it if you want to. But if you look at the tax forms and they scare you, or you don’t know where the expenses go, or where the income goes, right? At this point, I, I usually recommend getting a tax professional to help you. And there’s no perfect solution, right? And TurboTax will walk you through all the questions and it’ll help you fill out the forms. So there’s nothing wrong with doing that if you’re not in a position to pay for a CPA. But, ususally at a certain point in growing a business, I usually recommend getting a CPA.
[00:01:57] Andrea: And what does the process look like for when you are working with CPA like you?
[00:02:01] Charles Harris: Yeah. So usually there’ll be a meeting at the start to make sure that we kind of know what’s going on. And if you’re working through Music Studio Startup, that’ll either be with me or Andrea. And then what will happen is we’ll send you an agreement.
[00:02:16] As soon as you sign that we’ll send something we call an organizer. And I use a digital organizer. If you’re a little bit older you might recognize an old binder. Some CPAs would just hand you a big binder of paperwork. These days most use online tools. So I’ll send you an organizer. So it’ll basically be just like you’re filling it out on TurboTax and you’ll go through that. You’ll fill everything out. And then I’ll receive that information. I’ll go through it, check to make sure it all makes sense. And then usually I prefer a meeting right then and there, or soon after that, so that we can go through and talk about any issues or anything that you’re concerned about, or that we might have missed.
[00:02:54] I’ll probably ask you some simple questions again just to make sure that we’re all on the same page. And then you can just leave it in my hands and I’ll file it for you, make sure it’s all finished. You know, little things like making sure I know where to send your refund money or where the IRS can collect more money.
[00:03:08] Things like that. So we’ll have more communication obviously. But then once that’s finished, at least with my firm we do a little recap video. We walk through the tax return with you just to make sure that you kind of understand what happened, how much taxes you paid, where it went, you know, things like that.
[00:03:25] And then you’re good to go.
[00:03:27] Andrea: Excellent. And I wanted to highlight that tax prep meeting that you’re doing with people because that is not something that’s standard by any stretch. And I think it’s really valuable. Not just for like catching potential errors or missed deductions, but also like just the; there’s a little bit of strategy or you get to see into people’s businesses and you get to talk to them then about things that might, maybe they should have on their radar for the next year.
[00:03:54] Can you talk about what you would cover in that tax prep meeting?
[00:03:57] Charles Harris: Yeah, so I see hundreds of different companies so it’s really useful for me because I can look through your tax return and see, Oh, why don’t you have any expenses that are applicable to rent, right? Or if you’re a piano teacher, why is there no piano tuning, right? Maybe not necessarily required and weird situations can happen, but sometimes we can forget these things and it’s useful to have someone that comes behind and kind of recognizes and knows what’s going on, so that they can catch things that are missed like deductions. And then I think we talked about it briefly on the last episode too, but then we can also do a little bit of planning and say, if we want to make sure that in the future, these come down or your taxes come down, we can plan and make sure purchases and expenses kind of line up.
[00:04:45] Like your example from the last episode about buying a piano. But there are other examples too. And we can also talk about, you know, how can we make sure to make sure you’re the right entity type. If you need to be an S Corp or an LLC, or if you’re even at that point yet or anything like that. So there are just a lot of different things that we can talk about and I’ll usually come a little bit prepared to make sure that we can cover what’s needed.
[00:05:09] Andrea: Yeah, just greater context. I think it’s a tax preparer who might just go in and like drop your numbers in and not give it a second thought. You know, just as long as it looks credible, whatever, we’ll drop it in.
[00:05:21] But I don’t think that, I think that’s a missed opportunity to not have that, a conversation there. So I’m really grateful that that’s part of the tax prep package. And I thought I could share too a little bit about the experience of self preparing taxes. Cause I did that for a number of years and for a teacher who does select that what it looked like for me was buying TurboTax, the home and office edition or the business edition, not your baseline personal one.
[00:05:44] And then setting aside a couple weekends usually to first I would spend January getting all my books in order, making sure everything was tidied up there. And then I would set aside the time on my calendar to sit down for my computer and work through TurboTax. And, you know, the beginning went pretty smoothly.
[00:06:01] And then inevitably I’d hit a question that I didn’t know the answer to. And then I’d go on my rabbit trail of forum posts and reading. And I learned a lot. I learned a lot of irrelevant stuff in the process. And I think what finally did me in there was just like, I, I’m going to forums where people don’t know my business. They’re not answering my exact question. They’re answering someone else’s question. And I was spending hours and hours and hours doing this. And it just like, wasn’t worth my time anymore. It wasn’t worth my time to do it. And I think the IRS actually provides estimates of how long people spend doing taxes.
[00:06:37] And it’s they say eight hours for a personal individual return and up to 24 hours for a business return. So It’s not an insignificant amount of time preparing taxes especially when you’re not in that world every day, you’re not reading all the updates, getting, you know, seeing a hundred other music studios each year and noticing the commonalities.
[00:06:58] Charles Harris: And it was just like the same with all the, all you teachers, right? You guys are amazing musicians. And I used to be a music major a long time ago. Do not ask me to play in public anymore because I don’t practice and I don’t keep up with it. And taxes are the same way. I do them yearly and for a lot of companies and I keep doing them and during the year it’s my job to keep up with it.
[00:07:19] And so it’s just a different level of preparation and knowledge. Not that you can’t do it. It just. Saves you a lot of time.
[00:07:26] Andrea: Yeah, and I know we’ve got a lot of busy studio owners, and there’s like a real opportunity cost too. If you’re reading up on taxes instead of planning your summer programming, which is also something you need to be doing in January, then there’s like a real, can be a real cost to that.
[00:07:42] So great. Another question that’s come up. Do you help provide quarterly tax payment estimates?
[00:07:48] Charles Harris: If you’re an ongoing bookkeeping client, we absolutely do provide quarterly estimates for you as well.
[00:07:53] Andrea: What are some deadlines we need to be aware of?
[00:07:55] Charles Harris: Yeah, so the biggest one upcoming, I’m not 100 percent sure when this is going to publish, but January 31st, make sure all your contractors and your employees have their 1099s and W 2s filed.
[00:08:07] And then the big deadline after that is March 15th for your S corporations and your partnerships. And then April 15th is for your personal tax returns. So those are kind of the big, big ones. And then obviously I’m not including states in that. So if you’re in a state, make sure to look up your state filing deadline.
[00:08:26] Because I’m in Texas, it’s May 15th which is great. Or, sorry, May 31st And I’m even telling you the wrong one, even though I’m in Texas. And so that’s why I say look it up, make sure you’re correct on your state as well.
[00:08:38] Andrea: Okay. And then how about deadlines for working with you?
[00:08:42] Charles Harris: Right. So I want the organizer completed by March 31st.
[00:08:47] So that includes a qualifying meeting just to make sure that we’re all on the same page and then signing the agreement and then filling out the organizer. So give it an extra week probably before that just to be on the safe side. And then if you come to me after March 31st, I’m still happy to work with you, but we’ll have to file an extension.
[00:09:08] Andrea: And we are taking a limited number of clients this year. Earlier is better, you know, to, to have the best chance of working with us.
[00:09:17] Charles Harris: Well, and especially going through the organizer, right? You’re going to be asked a lot of questions and you might not know the answers to everything. You might have to go look for paperwork for forms.
[00:09:26] So I, I recommend giving yourself at least a day or two just to go through it. It’ll be faster than, than two days worth that Andrea was talking about for doing our own taxes, but it still does take a little bit of time.
[00:09:39] Andrea: Yeah, and even last year when I was doing my taxes, I realized I didn’t get a form. Like I had an email from my payment processor saying I would get a form and then they didn’t send me the form and so then it was this back and forth email thing and then they decided they didn’t need to send me one and it was a whole thing but it took many days even though it wasn’t even my form to create.
[00:09:59] So another question we got this week, this teacher registered an LLC mid year. And so the question was, are the expenses that she incurred before registering the LLC still deductible?
[00:10:10] Charles Harris: So the answer is yes. So an LLC is a legal definition. It’s not a tax definition. So for taxes, sole proprietorship is what you’re considered if you’re an LLC.
[00:10:23] Even if you’re not a sole proprietorship, I understand that gets confusing. But for tax purposes, you still are. And so you’re going to be taxed on the full year. And so anything that would normally be tax deductible for your business can still be counted. So in her situation, she had purchased a membership prior to starting her own LLC.
[00:10:46] For the IRS purposes, they can’t determine when you started trying to run a business, if that makes sense. So as long as you did it in the same year, it is definitely tax deductible. Now, don’t go through and go crazy on this, right? Don’t suddenly say that your home office has been a home office since the beginning of the year or something like that. But expenses that would normally be incurred for your business still would count.
[00:11:14] Andrea: We’ve also had a bunch of questions about the mileage deduction. Can you describe how that works for a teacher? And maybe I’ll start by saying like a teacher who teaches from their home primarily.
[00:11:24] Charles Harris: Right, so if you teach from your home then mileage to go elsewhere counts as mileage that you can count for the IRS.
[00:11:33] And so the IRS has a mileage rate I believe it is 65 cents or 67 cents, I’m sorry, for 2024. It is going up in 2025, but you’ll basically, I would keep a map of the distance you traveled. And then you can multiply that by the cents, and then that’s your mileage deduction. And so if you’re at, if you teach at your home, and you’re going to a recital, that mileage to the recital location would count.
[00:12:02] Or if you teach from your home primarily, and then you drive to a lesson somewhere else, then that would also count. So the big rules around mileage is commute. So if you don’t teach from home, And you teach at a studio, if driving to the studio would not count towards the mileage deduction. So it’s the commute that doesn’t count.
[00:12:23] But if you drive to the studio and then drive to a recital, that mileage would count. Gets a little confusing. Andrea can probably come in and clarify that a little bit. But basically it’s the commute that does not count for the mileage, but any other driving for your business does.
[00:12:39] Andrea: Yeah, I think that was a great explanation. And then teachers who get the most mileage are likely teachers who travel teach. So, they’ve got some that’s regular commute, but some that isn’t. Can you explain that scenario?
[00:12:52] Charles Harris: Right, so the first lesson distance traveled would not count. We count that as the commute. So your first lesson driving to them would not count, but then every lesson after that would count.
[00:13:03] And then the last lesson on the way home would not count. Little confusing. I know.
[00:13:09] Andrea: Yeah. So track your mileage regularly. Don’t wait till the end of the year to put that whole thing together. Fortunately for most teachers that that whole circuit is the same every week. So, you know, you know, from your house to student A’s house is five miles.
[00:13:25] And then the rest of your, your commuting traveling, sorry, I shouldn’t use the word commuting because that’s a technical definition here from between student A, B, C, D, E is 27 miles. And then back home is three miles. So that 27 miles is going to be the same every week and, or every Monday or whatever.
[00:13:42] So you can kind of replicate that from week to week. If you’re not using like a, a live mileage tracker in your, on an hour.
[00:13:51] Charles Harris: Going off of Andrea’s point a little bit I always recommend that you make a map in Google maps of your drive. So you can show and keep track of that. And then you could use it week after week and you don’t have to sit there and you just have to keep track of any exceptions to the rule, right?
[00:14:08] Andrea: Oh, that’s a great idea. Like actually map it out with pins and
[00:14:12] Charles Harris: Right.
[00:14:13] Andrea: Yeah.
[00:14:14] Charles Harris: Then it’s really easy and you can just expense it every, every month or every week into your accounting software or your Excel file.
[00:14:21] Andrea: Yeah. That’s super smart. Thank you for that clarification. And then for all teachers, whether you teach at home or at a studio, what about if you’re going to a conference? Like totally different. It’s not part of your routine work. It’s a conference. You’re driving 500 miles. Is all of that tax deductible?
[00:14:36] Charles Harris: Yes. So that, that’ll be part of your travel or your, your conference. So it’s, it’s a little bit different than just local travel.
[00:14:45] Andrea: We’ve also had a bunch of questions come up on just like, what taxes do I have to pay? And all of that starts getting into a bigger topic, and so we are going to be giving a tax webinar. The date for that is February 6th, and we’ll have a link to register for that webinar in the show notes for this episode and you can sign up for that on February 6th to answer all those higher level, like how do self employment taxes work questions, and then Charles will be on there too to answer all the other stuff that comes up. Usually great discussion happens in that webinar. You can find the links for getting in touch with us about those tax prep services or ongoing accounting services at musicstudiostartup.com and the show notes for this episode at musicstudiostartup.com/episode159. That’s all for today. Thanks for listening. I’ll be back next week.