It’s time to get another Forum Q&A going!! Let’s talk about business structure options for teaching studios. Despite having a music degree, I still know very, very little about setting up a business. I doesn’t seem right…I wish one of my college courses had covered this topic at some point. :/
Do you have a solo proprietorship, partnership, an LLC, or a corporation? What are the benefits of each option? Do you have a separate bank account set up to manage studio income and expenses? Do you hire an accountant or bookkeeping services to help with the accounts and taxes? What other business advice can you offer?
I hope you can help me out — and hopefully other readers will benefit too! Update: Here is my follow-up post.
Sole proprietorship here. I applied for a EIN (Employer Identification Number) so I could open a separate business account for the studio. Then I opened the account at my existing bank – that way I can make transfers between my business account and personal account very easily.
As per bookkeeping, I’ve kind of learned on my own. I have an excel sheet for each year, with sections such as: lesson income, office supplies, studio maintenance, studio rent, music reimbursements, advertising, other expenses. Each tab is divided into quarters, with formulas to calculate final numbers so that I don’t have to do more math than required 🙂 I update this file religiously, keep all my receipts, and make sure to back-up my files in multiple places just in case. (Google documents all the way!)
As a studio, you’ll need to file taxes 4 times a year – and the first year is rather tricky, since you’re supposed to base your quarterly taxes on the information you had *last year.* It’s a bit tricky, but luckily I have some friends who have been willing to help me figure out the forms.
All that said, since you run your business out of your *home* – you’ll have other things to consider. Things like – do you have insurance to cover you if a student gets hurt? Since I have a studio in an existing business, and I know the owner really well (future father-in-law), my studio is covered under the main business insurance. You can also file your taxes a bit differently if you run out of your home.
I’m still very much in the learning process of this aspect – so I look forward to reading more information here!
(And by the way – you moved not too far from me!! I’m over near Sharon, PA – just over the OH border 🙂
Thanks so much for your input, Sara. I’m looking into the LLC option right now, which costs more but might provide some additional benefits. We’ll see — I need to research this more yet. 🙂
*waves from OH* 😀
Hi Joy! I was also doing a search about this topic, and fancy seeing your website coming up in my results, since I already know you!
Well, I’m not done doing my research, but I have a sole proprietorship. It is pretty small, but I want to do a bit more, and so I am trying to keep my work finances and personal finances completely separate to protect personal assets. Note that for a sole proprietor, keeping separate accounts and paperwork for the business assets and expenditures and income is strongly recommended, but it isn’t required. Just keep good records showing what is for work, and what is personal, and pay IRS the right amounts and be able to justify it. But combined monies are frowned upon by IRS. Even keeping everything separated, a sole proprietorship means that our personal assets are at risk anyway. This includes joint assets owned with another person, namely a spouse! An LLC helps protect against this, and it requires registration with the state. The name of the business will require assignment to a “doing business as” (DBA) name. Liability insurance is important. I am not sure I am going to do an LLC; although there is a risk, I still am looking into the cost and paperwork to maintain an LLC, to see if it is worth it. To keep from having any risk an LLC is worth it. The risk seems small; however, you never know. Am I being paranoid? A corporation is even more protective, but certainly more expensive and time-consuming to set up and maintain, so I won’t consider doing that. Still researching. I don’t have an accountant; for my small studio, I can do my own taxes and have scrutinized the boring IRS text and researched online tax advice blogs to death.
Am I right to think that the difference between a sole proprietor and an LLC is the insurance?
Hi! Thank you both for your comments they have been so very enlightening. I have been teaching piano for two years under a well organized studio, and now for various reasons, I am ready to start my own studio. Please respond with your take on the difference between the two. Thank you
Hi, Rebekah!
Insurance is actually a separate matter. You can purchase or choose not to pursue getting insurance, whether you are a sole proprietor or an LLC. The government/IRS does not care whether you purchase insurance; it’s up to you!
However, the LLC is a legal business structure which happens to have some built-in liability protection, because it is establishes a business identity that is more separate from one’s personal assets.
Read more here: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures
This will be the first year that I will make enough to need to file for a business license as a piano teacher and I’m wondering about these same questions. Does anyone know what kind of liabilities piano teachers expect to have? I have homeowners insurance and pay the $16 extra per year to have it cover accidents if they occur in my in-home studio, so I am covered up to a good amount if someone gets hurt in my home. I just can’t fathom any other reasons for needing extra coverage. Am I missing something?
Hi Barb! Some people buy coverage to cover their piano or their sheet music library. Professional Liability Coverage is another option out there. It’s really up to you whether you decide these are worthwhile things for which to get coverage in your unique situation!