Qualified Income Business Deduction for Piano Teachers
I’m excited to tell you about a significant Qualified Income Business Deduction for Piano Teachers. I wish I would have written about sooner than now, but it will be good all the way until 2026 (unless Congress changes it), so it’s worth years of good news!
This deduction is called the “Qualified Income Business Deduction” or “QBI” or Section 199A for short.
Here’s how it works:
If you are a self-employed person either with an LLC, an S Corporation, or a sole proprietorship, you can take advantage of this. Whatever your taxable income is (that’s your net income, not gross), you will only pay taxes on 80% of that taxable number (not applicable to W2 wages).
So here’s an example:
Let’s say that you deduct all of your expenses and find that you made $25,000 net. Eighty percent of $25k is $20k, so you would only pay taxes on that $20k.
So the money that you save is the money you would have paid on that $5,000. If your effective tax rate is 25%, then 25% of $5,000 is $1,250. So you would be saving $1,250 of tax. As another example, if you made $50,000 net income, then your taxable income would only be $40,000. This means that $10k would not be taxed, giving you a savings of $2,500 if your effective tax rate was 25%. (See note at the end regarding confusion about tax brackets.)
Keep in mind though, that you don’t get it on anything that comes in the form of W2 wages.
Now, here are some questions that I had when I first heard about this Qualified Income Business Deduction for Piano Teachers (of course it’s not just for piano teachers, but can be for anyone who is self-employed):
***Please note that none of this article should be considered legal or tax advice. Please consult with a tax professional about your specific situation as all tax matters and this QBI deduction will vary in complexity depending on the size of your business.
So how do I know if I qualify?
Any self-employed person who files as an LLC, S Corp, or Sole Proprietor should quality. If you have not registered as an LLC or an S Corp and you are self employed, by default, you would be a “sole proprietor” and if your income would be reported on a Schedule C of your income tax return. (Take a look at last year’s tax return for a clue.)
How do I make sure I get this Qualified Income Business Deduction?
The good news is that in most cases, this is going to be automatic. For example, most online tax software would lead you through that such that you would get it. The same is true for any professional tax preparer such as a CPA or accountant. In addition, if you are doing your own taxes off of an updated CD/DVD version of tax preparation software, then you will probably already get it as a part of the process also.
If you are doing your taxes manually on paper, I would suggest that you get help from a tax preparer to ensure you get this deduction.
How long does this Deduction last?
This Qualified Income Business Deduction expires in 2026 unless Congress acts to extend or shorten it.
What if I’ve already filed my taxes and didn’t take advantage of this?
You can most likely amend your return. The rules for that are beyond the scope of this article, so please consult your tax advisor for details on how to do this.
Is there a cap to the deduction?
Yes. The deduction phases out with substantially higher incomes. Consult with your tax adviser about this.
One quick (positive) note about tax brackets:
I’ve always been confused about tax brackets, thinking that if you get into a higher tax bracket, you pay the higher rate on all your income. But that is not true. You only pay the higher rate on the income above the threshold. So, as this lovely piano teacher’s husband put it,
You are always better off getting into a higher tax bracket–this means you made more money, and will have more money left over after your taxes are paid!
Okay, there you have it! I hope this is helpful information. Please remember that if you have specific questions, I am definitely not the person to ask. Please consult your tax professional to give you answers. Also note that none of this article should be considered legal or tax advice. Please consult with a tax professional about your specific situation as all tax matters and this QBI deduction will vary in complexity depending on the size of your business.
Though taxes are not usually exciting, Qualified Business Income Deduction for Piano Teachers is at least a bright spot in the tax system.