Practical Advice for New Tutors (Part 3) – Avoid Financial Surprises
Tutoring is a great way to create an income stream that is both rewarding and flexible. However, there are some things you should do to ensure you can avoid financial surprises that come with creating your own tutoring business.
Any time you are in a position to generate income, you can bet Uncle Sam is at the ready to collect his share. Unlike other jobs where you may have worked, your tutoring clients are handing over payment without withholding Medicare, Social Security, or income taxes. It is your responsibility to track your income and expenses and to report this information truthfully and completely to the IRS. While this can be a tricky process, retail tools like Quicken and TurboTax can help take some of the headache out of the process. Regardless of the method you choose, you must be diligent about your bookkeeping to ensure you are in compliance with your local and federal regulations when it comes to running your own private tutoring enterprise. You will likely also need to register in your local town hall as either a “sole proprietor” or an LLC to guarantee you are in accordance with all federal, state, and local tax laws. For more details about how to deal with the taxes on your tutoring income, check out the ultimate tax guide for self-employed tutors, freelancers and coaches.
2. Budget for Expenses
One of the convenient features of a tutoring business is the low overhead cost to keep it running. That being said, there are costs associated with the day to day operations of a private tutor.
One of the biggest costs is transportation. Owning and operating a car can amount to $500-$800 a month when you total up costs like gas, tires, insurance, maintenance, licensure, and registration. If you are relying on a car to get you to and from your tutoring appointments, you will want to also be sure to have some extra money set aside for emergencies should something unexpected happen to your vehicle.
If you tutor in places where public transportation is an option, be sure to calculate the expenses for fares with some extra money set aside should you need to take an alternate form of transportation to avoid unforeseen delays.
Office supplies like paper, pencils, calculators, practice materials, computer software, online subscriptions, and notebooks may not seem like bank-busting expenses, but they can add up. Be sure you are keeping track of your expenses on these types of materials so you can not only budget for their cost, but so that you can deduct them as business expenses come tax time!
3. Cancellations Happen
Tutoring sessions have to be cancelled from time to time; it is an inevitable part of the trade. Don’t count on tutoring income that has yet to be earned as there is no guarantee that every session will happen as scheduled. Planning ahead for the potential of missed work opportunities can help protect you from experiencing financial difficulties.
Occasionally you may have to cancel a session for an illness or personal emergency; but it’s the cancellations made by your clients (and therefore are beyond your control) that can have a much more negative effect on your bottom line if you aren’t careful.
Having a defined policy for how much notice a client must give for cancellation can go a long way in protecting yourself against a loss of an earning opportunity. It is fair to expect 24 hours of prior notice for a client’s cancellation; for a cancellation with less notice, have a policy in place for what the client owes you for the missed session. After all, when a client cancels last-minute, you likely are missing out on the opportunity to utilize that time to meet with another client. Establish from the beginning of the tutoring relationship what these cancellation policies are to prevent misunderstandings down the road.
For more tips to help maximize your tutoring success, be sure to visit The Knowledge Roundtable Tutoring Blog.