Understanding dance studio tax deductions isn’t rocket science. With these useful tips, you’ll learn to quickly file those important receipts, bills, and statements, saving your brain power for creating fun routines on the dance floor.
Even if you have an accountant managing your books, it’s important to understand what the IRS has determined is a valid tax deduction. Essentially, anything that’s needed to make your dance studio successful, within reason, should be allowed as a deduction.
You can organize your business expense categories on a spreadsheet, or with accounting software, such as FreshBooks or QuickBooks Online. These programs can even sync with phones, allowing you and other employees to input expenses within seconds.
Wondering if you need to hire a certified accountant to prepare your business taxes?
Plenty of sole proprietors, such as dance studio owners and dance teachers, file their taxes using easy-to-understand tax software — which not only takes away the headache of filing, but also helps you learn about and claim small business tax credits.
However, if you’re confused and overwhelmed, hiring an accountant can help get you started. Make sure to pay attention to the terminology and categories, learning as much as you can along the way. Because the more you know, the more money you’ll be able to save in the long run.
1. Studio space rental
If you’re paying for space to teach your dance classes, it counts as a business expense.
The rental deduction can be used if you’ve signed a lease, or if you’re renting space that’s used by another business.
Here are a few examples of rental space deductions:
- Church halls
- School gym
- Space in your own home
- Community center
- A lease on a studio
All the money paid toward use of these spaces can be filed under “rent” when doing your bookkeeping. The only exception is using space in your own house, which would be filed under a home office deduction.
However, if you’re using space for free, there’s nothing to deduct.
For example, a local church allows you to teach your classes there in exchange for an occasional dance performance. Even though you can’t claim rent in this instance, you can still claim other expenses, such as buying a stereo system to be used at the church hall (more about this under “equipment”).
All utility expenses associated with running your studio or dance space are fully deductible.
Here are some examples of common utilities:
- Internet service
- Water and sewage
- Garbage removal
Basically, if you need a utility to keep your business successfully running, it counts as a business tax deduction. Nobody wants to dance in the dark!
If you’re renting from another business, such as a room in a community center, keep track of the portion of utilities you pay. Only this amount is deductible. Make sure to keep your invoices or get receipts for each payment you make. Then enter these figures immediately into your accounting software.
While you can’t deduct expenses for personal use of your cell phone, you can deduct a second cell phone or landline that’s used exclusively at the dance studio.
3. Office supplies
Many dance studios have a waiting area, perhaps with a desk and a receptionist where students can sign in or register for classes. You might use various supplies and equipment in this space, most of which can count as business deductions.
However, it’s important to understand the difference between supplies and equipment. In this case, supplies are items that are purchased for your business and are expected to be used within a year.
Examples of supplies include:
- Pens, markers, pencils
- White boards
On the other hand, the desk and computer in your office area are not supplies — they need to be filed under “equipment” (see the next section).
If you do all your studio’s administrative work at home, you may be able to deduct your home office expenses, such as a portion of your rent or mortgage interest. It’s important to read up on the, reaching out to a tax expert if you’re confused.
Also, most tax software has a questionnaire to determine if you’re eligible for this deduction. Those who are currently teaching remotely due to the COVID-19 shutdown can claim a portion of the home as a deduction (enter the square footage under the “home office” section in your tax software).
Furthermore, you can deduct any online services used to stream your classes, such as a paid Zoom subscription (enter these expenses under “other” and then “subscriptions”).
Over time, you’re bound to invest in equipment for your studio. Even if you’re a solo dance teacher, you can deduct any dance equipment purchase that is meant to enhance your teaching, such as a new iPad or Bluetooth speakers.
Furthermore, the equipment doesn’t have to be stored at the place you teach in order to be deductible. A portable stereo you buy to teach at multiple locations is still deductible.
However, if you use the equipment for both business and personal use, you’ll only be able to claim a portion of the expense as a deduction.
For example, if you bring your personal laptop to the studio to play music, then only a percentage of it can be claimed as a business expense. Using tax software takes the brain work out of calculating these detailed deductions.
Here are some examples of eligible dance equipment deductions:
- Ballet barres
- Sound systems
- Pilates machines
- Exercise balls
- Hand weights
- Laptops, iPads, tablets
When deducting dance equipment, you have the choice to depreciate each item or write-off the full amount by using the section 179 deduction.
For example, if you purchase new mirrors for your studio in 2020, installing them in the same year, you have two ways to deduct them on your 2020 taxes:
- Depreciation: Only a portion of it will be deducted in 2020, with another portion the following year, and so on until the value reaches zero.
- Section 179 deduction: You can deduct the full amount in 2020, with no further deductions for those specific mirrors in the years to come.
There are a few stipulations to the section 179 deduction, such as your business must report a profit that year, and the purchase needs to occur within a specified limit, which changes each year. Also, you have to elect this deduction — it doesn’t happen automatically.
The method you decide to take is entirely up to you. It may be advantageous to claim a large expense one year, especially if you have a high tax liability. However, spreading it out over several years allows you to benefit from the deduction for a longer period of time.
5. Salaries, wages, and independent contractors
Most dance studios have a team of dedicated, hard-working staff that helps keep the business running smoothly. All compensation paid to these employees, regardless if they’re full-time or contract workers, are deductible.
Here are some examples:
- Full-time employees
- Part-time employees
- Freelance or contract workers
- Substitute teachers
- Office staff
- Studio cleaners
- Parents or students who are paid for work
Make sure your employees or contract workers sign the appropriate paperwork before beginning employment. Then, keep on top of payroll taxes to avoid any penalties at the end of the year.
Furthermore, all benefits paid to employees are deductible, such as health insurance premiums, liability insurance, or bonus pay.
Lastly, make sure to understand how your business is structured. For example, do you have an LLC or an S corporation? This information will determine how you pay taxes for your business, as well how — and whether — to claim the qualified business income deduction (QBI).
6. Costumes and make-up
A dance studio wouldn’t be complete without yearly recitals and productions for the public. And these productions need sparkly costumes and make-up in order to be a hit. Don’t forget other key supplies, such as dance shoes, hair clips, hair spray, and sequins.
You can deduct the overall expenses for these items under “supplies.” However, if you’re selling costumes to students, you’ll have to calculate the cost of goods sold. This applies whether you are ordering costumes or paying someone to make them.
It may be confusing at first, but all you need to do is keep track of the inventory costs and let your tax software do the work. Or, just hand over the receipts to your accountant.
Any marketing and advertising expenses you incur for your business can be claimed as a deduction. You’ll see this category listed as “advertising” on your tax software.
We strongly advise putting this expense at the top of your master budget. How much to spend is entirely up to you and your overall business goals. Just remember: You need students to make your studio successful!
Here are some common ways dance studios spend their advertising budget:
- Business cards
- Social media ads
- Google ads
- Radio ads
Think about the most effective way to advertise for your dance studio. Many small businesses are turning to social media advertising, which allows them to cater to specific audiences. Consider this for your next session of classes, workshops, or summer camps.
Music is definitely an essential component to any dance class, therefore making its related expenses a proper tax deduction.
All of the following examples are tax deductible if used solely for your dance studio:
- iTunes song purchases
- Spotify premium subscription
- Pandora premium subscription
- YouTube premium subscription
For music subscriptions that are shared between your business and personal life, do your best to estimate the percentage of use.
For example, if you listen to Spotify while deep-cleaning your kitchen and during nonbusiness road trips, but you also use it for your dance classes, you might decide to claim only 50% of the fees as a business expense.
When entering music into your tax software, use the “other” section, then enter “subscriptions.” In the case of purchasing CDs, you can enter them under “supplies.”
For music equipment, such as stereos, iPods, and speakers, make sure to file them under “equipment.”
In order to keep your studio’s image fresh and exciting, you’ll want to stay on top of the latest styles, moves, and techniques in the dance world. Therefore, you and your team of teachers will most likely enroll in regular training, classes, or workshops. And yes, all of these count as valid business expenses.
Here’s an example of how to enter training and subscription expenses in the H&R Block software.
The tax software will guide you to the correct spot to enter this. For example, on the H&R Block tax software it’s entered under “other business expenses,” allowing you to type in “training” or “education.”
Keep in mind that these expenses are only deductible if your studio pays for them. For example, if one of your teachers pays for her own training and is not reimbursed by your business, then she’ll need to claim it on her individual taxes.
Even though many studios limit teaching to the confines of their studio, there are instances where you or other teachers may incur travel expenses.
Here are some examples:
- Dance competitions
- Training events
- Dance workshops
- Performance opportunities
So, what’s deductible when you hit the road with your dance team? Basically, any expenses you incur on the road that are directly related to your dance business.
Make sure to keep it within reason, of course. If you take your dance company to New York City to perform, you can claim your hotel expenses, but not the tickets to see five Broadway shows (sadly, entertainment costs are no longer deductible).
Some popular travel expenses may include the following:
- Mileage: You have the option to deduct vehicle-related expenses or deduct actual miles driven using the .
- Meals: Only 50% of the bill can be deducted.
- Lodging: Hotel, AirBnB, or campground fees for you and your dance team can be deducted.
- Air travel: Plane tickets needed to travel to a dance-related event can be deducted. However, booking air travel with points or frequent flyer miles is not deductible.
- Taxis: We suggest using Uber and Lyft, since the receipts are sent directly to your phone, making sure you don’t lose them during your adventure.
- Other transportation: Bus, train, subway, and any other forms of transportation are deductible if used to transport you and/or your dance team to a business-related event.
Make sure to keep on top of the current list of acceptable business expenses since the rules do change from time to time.
Keep up with dance studio deductions
The more knowledge you can gain about taxes for your business, the more prepared you’ll be to recognize deductions in your daily transactions.
If in doubt, save the receipt anyway. There are plenty of times when tax rules change, and you’ll be grateful you saved a whole stack of receipts that are now eligible to be claimed.
Understanding the categories for dance studio tax deductions will help lower your overall tax liability. You can then use those savings to expand and grow your business.
View more information: https://www.fool.com/the-blueprint/dance-studio-tax-deductions/