Navigating the complexities of tax deductions can often be quite a challenging task, especially when it comes to education-based expenses. One query that often comes up in this area is: “are tutoring services tax deductible?” 

This in-depth guide will tackle the different issues that arise with tax deductions for tutoring and common misconceptions about claiming educational expense deductions. What’s more, we’ll also get into how tutor and tutoring agencies' rebates differ and the numerous Internal Revenue Service (IRS) guidelines for educational expenses.

However, there’s no need to stress. We’ve got your back, whether you need tutor management software or a simple way to do tutor invoicing easily. All you need to do is read on for our breakdown of tutoring services’ tax deductibility. 

How to Follow Criteria for Tax Deductibility of Tutoring Services

There are various measures you need to have to be able to get a tutoring tax credit. So, what are they?

1. Start Your Tutoring Business Right

You’ll need to be established as a business before claiming tutoring on your taxes. To do this, you should register your tutoring company as a sole proprietor or a limited liability company (LLC).

Sole proprietors, simply put, is a business that only has one employee: you. So, if you don't plan to share your business income with others, then this is easiest. All you'll need to do is check with the US Patent and Trademark Office and your district's Recorder's Office to see that no one else has used your prospective business name. After receiving confirmation about the name availability, you can register your business name with the Secretary of State.

For LLCs, it's a bit more complex to get started. You'll still need to register your business name with the Secretary of State or a business agency (based on your state's requirements). Other processes to complete include:

  • Running comprehensive background checks on prospective tutors: As they'll be working with minors, this is important.
  • Signing NDAs: This shows your clients your professionalism and that you respect their privacy. This will also need to be signed by your tutors.
  • Creating employment agreements: This makes sure you and your employee know their rights and responsibilities.
  • Complying with zoning laws: To make sure your business follows your state's rules.
  • Assessing the learning environment's safety: If tutoring is happening in your home or office, it needs to be free of hazards, so you're legally protected by general liability insurance.

2. Buy What You Need, Keep the Receipts

If you want to qualify for tax deductions, one essential thing is to keep receipts of purchases you made for business purposes. Now, you can't go around buying anything and just claim it as a deductible expense.

Relevant and regular purchases that can be claimed as tutoring expenses include the following:

  • Educational materials and software – textbooks, tutoring-related subscriptions, and stationery.
  • Marketing and advertising – websites, business cards, and online ads.
  • Travel and insurance – mileage, gas, parking, and liability insurance.
  • Home office – rent, utilities, and insurance.

3. Have a Great Record-Keeping Process

Another lovely way to ensure you follow the criteria is by having an organized and neat record-keeping method. This includes all kinds of documents, like business licenses, tax forms, receipts, and client invoices.

This is very handy if you get contacted by the Federal Government or the IRS, as all your records will be in one place.

4. Use Tuition Software

If you're looking for an alternative method to stay organized, you could always use tuition software like TutorCruncher. Features of TutorCruncher include business analytics, comprehensive customer relationship management (CRM), and an exceptional scheduling system.

All of these tools will keep you in the loop with your revenue figures in an easy-to-use way. This will help to make filing taxes a breeze!

5. Check With the Experts

Lastly, you could also book a consultation with a tax professional if you're still feeling overwhelmed. Not only will they be informed on all the latest taxation policies and relevant documentation, but they can also help you save money and give you some great tax tips. 

Differences in Tax Deductions for Tutors and Tutoring Agencies

Talking about tax-deductible expenses, there is a difference between claiming for private tutoring as an independent contractor and as a tutoring agency.

As a self-employed tutor, you'll need to fill your personal and tutoring business tax together. In this process, each independent contractor needs to submit a Schedule C (profit and loss report) and a Form 1040. What's more, you'll also have to contribute fully to the Social Security and Medicare Program as you don't have employees.

When it comes to an LLC, you'll be able to separate your personal income tax from that of your business. It's also a way to lessen your liability.

Tutoring agencies are also able to use salaries, benefits, and training as deductible expenses. Additionally, fees paid to accountants, lawyers, and professional consultants may be deductible.

How to Claim Deductions

Now that we've gone over what you need to follow and how different tutoring methods vary let's get into how you can claim deductions.

Ask Clients for 1009-NEC Forms

Nonemployee Compensation (NEC) Forms are often used by schools and agencies when an independent contract has been paid more than $600 over a year. To claim for deductions, you'll need to ask the relevant party for your NEC Form, as this is used as proof.

PS: An exception to this is if your client, i.e., the student or their parent, pays you indirectly. Then, the 1009-NEC requirement is waived.

Send the IRS Quarterly Payments

Another thing to consider is that you'll need to send the IRS quarterly payments. This is required for independent contractors who plan on paying more than $1000 in taxes annually. The dates to send these are April 15, June 15, September 15, and January 15 (of the next year).

4 Common Mistakes to Avoid when Claiming Deductions

With all we've covered, we get that this all might be a bit much. That said, there are a few errors you might make when claiming deductions. Here's a list of frequent ones so you know what not to do.

1. Not Keeping Track of Business Expenses

Besides running a successful business, having no track of your business expenses will result in you losing money on several deductions.

2. Not Staying in the Loop with the IRS

If you're not aware of the fine print and policies the IRS adds for tutoring, teaching, and self-employed people, then you will miss out on the tax benefits of various deductibles.

3. Not Saving Money for Taxes

Besides knowing the latest info about your taxable income, it's also essential to save enough money for the cost of your taxes and any other related purchases.

4. Not Putting Tax Deadlines in Your Calendar

As we mentioned earlier, you'll also need to keep track of the different dates you need to file your tax return. This is because not getting your own tax return on time can result in a Failure to Pay Penalty.

FAQs about Tutoring Services’s Tax Deductibility

"Are tutoring services tax deductible?" is only one of the queries tutors need answering. Luckily for you, we've compiled a list of the most commonly asked questions about tutoring.

Is Tutoring a Good Way to Make Money?

Yes, tutoring is a great way to make money, especially as a side hustle.

How to Keep Your Tutoring Expenses Organized?

Tuition software, such as TutorCruncher, is a fantastic method to keep your expenses organized, as it keeps all your invoices. Additionally, having a color-coded filing system is handy.

What Does Not Count as a Deduction?

Any purchase that does not qualify as a business-related purchase will not be deductible.

Final Thoughts on Are Tutoring Services Tax Deductible

There you have it; all you need to know about taxes related to tutoring services. Whether you are a tutoring agency or just a self-employed tutor, it's paramount that you keep your expenses organized. 

Not only can it help you save cash, but it's also a fantastic way to show clients your professionalism. Having sound financial management skills is critical, especially if you're part of the gig economy.

Next read: Now that you've got your taxes under control, check out this guide on legal requirements for tutoring businesses to keep up on your admin.