How to plan for a 9-month work year (part 1- planning for taxes)
As music teachers we face a constant challenge. How do we live for 12 months when our regular, guaranteed income is only 9 or 10 months? Unlike school teachers, we are usually independent studio teachers or work for a music school that is unlikely to spread out our income over 12 months. Summer is wonderful, don’t get me wrong. But financially it can be a stressful, difficult time for music teachers.
After 23 years as a music teacher, I have learned a few tricks. The most important advice I would give a new teacher is CONSULT WITH A TAX ADVISOR! Even if you think your taxes are simple enough to do yourself, or you just don’t have the money to hire a CPA every year, meet for a planning session with someone knowledgeable and familiar with the self-employed. The advice you will get setting up a planning system is well worth the money. Having a monthly plan for money that you need to set aside to accomodate your quarterly estimated taxes and your basic summer expenses is vitally important. If you are a professional musician who is hired for performances irregularly, enjoy the added income, but do not count on it to pay you rent/mortgage or for other required monthly expenses.
I have personally had the experience of thinking everything was OK, receiving an unexpected tax bill in April, and being left with almost no money set aside for summer. When it happens, those relaxing weeks of summer with less teaching and fewer obligations can become a nightmare rather than one of the perks of being a teacher! Now, after years as a teacher trainer, I have heard the story many times and know that I was not alone as a young teacher who was caught in a bad situation.
Once I realized that my primary income would be the 9 or 10 months of the school year, I had to make adjustments in my basic budget. Our tax accountant gave us a wonderful formula that has worked for over a decade. She recommended setting aside 15% of your monthly income for estimated taxes.
As most of us have figured out by now, the federal government assumes that income is stable from January-January. This is the number they use to predict your quarterly estimated tax payment. But for many of us, our income changes rather drastically every September. Maybe this is the year that you took 15 new students in September. In this case, you need to plan for a high tax bill in April reflecting the added income from September-December. Or maybe, as is the case for my family, you have a year in which you moved and had to begin building a studio from scratch. In this case you will receive a tax refund and lower tax estimates for the following year. But don’t be fooled. As you build your studio and income improves, you need to have set that money aside for taxes.
No matter what your unusual circumstances are, come next April, you will owe taxes on the money you have made the past year. If you have a low quarterly payment, enjoy earning a little interest off the money you put away, but ABSOLUTELY DO NOT SPEND THAT MONEY. It is not yours, you just get to use it for a while until your estimated income catches up with your actual income.
In the music teaching business we are typically going to be in the lowest tax bracket (yes, I know, I wish we made more money too). The 15% rule only applies if you are counting your teaching income as your primary income and DO NOT have another significant income source. Please check with your tax advisor about your individual situation.
Once you have figured out how much you will owe in taxes for the year (remember that this is NOT always the number the government has said you owe in estimated taxes), you can move on to trying to plan for the summer. My next post will be “Part 2- saving for summer”.
Taxes are like getting your roof fixed. It is one of the unglamorous parts of our job. How have you handled planning for taxes? Have you ever been caught off guard with a huge April tax bill? Let me know your strategies.
