As 2019 draws to a close, the start of 2020 means the start of tax season. Most online teachers are not employees (do not receive a W-2) and will be getting ready to report their self-employment income prior to the April 15* deadline. Listed below are some deductions to tally up prior to the end of the year, and/or to keep in mind for 2020.
Some Straightforward Deductions
Props & Realia
Do you use puppets? Stuffed animals? Whiteboards and markers? All of these things are tax deductible expenses that can offset your business income. Anything that you purchase to create the background necessary for teaching is a business expense.
Do you belong to any professional organizations? TESOL.ORG or your local chapter of TESOL? These professional affiliations may be tax deductible, as well as subscriptions to any professional journals.
Anything that you use strictly for your work as an online teacher (e.g. notebooks to take notes about the students in your classes) is tax deductible. The pens, pencils, or markers that you use are tax deductible. Similarly, paperclips, tape, etc. is all tax deductible if you are using it strictly for business.
Rented Office Space
I maintain a rented office space that I use 100% for business use. This is more a product of the fact that I don’t have adequate internet at my home as opposed to my desire to have a separate workspace. However, the 250 euro I pay each month is a tax-deductible business expense. Similarly, any utilities/internet expenses associated with this office space are tax deductible since they are used exclusively for business use.
More Complex Deductions
Expenses for Business Use of Your Home
If you work from home, you can write off a portion of your expenses that are relevant to the business use of your home. You can complete the IRS Form 8829 and file this along with your Schedule C. Bear in mind that when you complete this form, you are depreciating your home. This is a ‘cashless expense.’ That is, you are taking an expense for the decline in the useful life of your home. This is nice at tax time! You get money back for an expense that you never paid! Too good to be true? Maybe… This lowers the cost basis of your home. So, when you sell your home, you will have to recapture that depreciation- that is, pay tax on a gain that never actually made. There is a simpler way- the simplified version.
The home office deduction is available for those who work out of their home as their principal place of business. This home office must be used for “regular and exclusive use.” The simplified version (which allows you to deduct $5 per square foot up to a total of 300 square feet). This does not impact the cost-basis of your home. Further, if you are using the actual expense method, you MUST keep detailed records of all expenses. Many people opt to simply use the simplified version of the home office deduction because the record keeping is far simpler.
That TEFL Certificate
Most people your TEFL would be a straightforward business expense. Not really. You are allowed to deduct any education and training that you do which helps you to do your job better or is necessary to keep your current job. I have been employed with my company for several years. I was able to get hired with a 100-hour TEFL certificate. Since I was hired, the government of China instituted a law requiring teachers to have a 120-hour certificate. I took an online TEFL to meet this requirement and keep my current job. This is a deductible business expense. However, if you are a new teacher who took a TEFL in order to get a job or to switch careers, this is NOT a deductible expense.
Much like the TEFL, this seems like something online teachers should absolutely be able to deduct. You are generally able to deduct the portion of the internet usage that you use for business. If you pay $50 per month for your internet service, but spend only half the time on the internet, then only $25 per month would be deductible. NOTE: If you are claiming the simplified version of the home office deduction, you are not able to deduct separate expenses related to the business use of your home. The internet usage is included in the $5 per square foot. If you use mobile data, such as a hotspot that allows you to teach from a variety of locations, this is not an expense related to the business use of your home and should be tax deductible on your Schedule C.
ALWAYS consult with a tax professional regarding your own personal situation. This posting is informational, but it is always a good idea to get the specifics of your own return handled by a CPA or Enrolled Agent. Taking advantage of the deductions available to you as a self-employed person is important. Not only does it reduce your income tax liability, it also reduces your self-employment tax liability. Remember that as a self-employed individual, you are paying the employee AND the employer share of your SE-tax: a whopping 15.3%!!! Remember to always keep good records. Running a small business as a teacher is fairly easy and doesn’t require a ton of record keeping. Making an effort throughout the year to keep track of your income and expenses will make things dramatically easier come tax time.