Setting your tutoring rates, paying tutoring taxes, and the other boring parts of being a tutor

Last updated: April 11, 2019

Self-employment and taxes as a tutor

As a tutor, you’re going to be self-employed. If you make more than $600 in a year (which I hope you do), you’re going to have to think about taxes and, therefore, the legal structure of your business. Let’s talk about it.

Small business owners have a couple different options available in terms of the legal structure of their business. Your business can be a corporation, partnership, LLC, or sole proprietorship. Of those, the cheapest and easiest is to be a sole proprietor. That’s what you should be.

As a sole proprietor, you don’t need anything fancy legally to do business. You can just go out there and start selling your services. Because you don’t have a storefront, you don’t even need a legal business name (a DBA) or permits.

For sole proprietors, their property and their business’s property is one and the same. Everything shares one bank account, and the business owner is liable for everything. As a tutor, there aren’t many risks to doing business. Nobody is going to sue you; you will not take out any loans; you have no contractual obligations.

Come tax season, you’ll be paying normal taxes for everything you made, plus 14.5% self employment tax (normal employment tax is 7.5%). Short answer: you should expect to pay between 1/3 and 1/4 of what you make in taxes. You need to be making these payments quarterly to the IRS. If you wait until April 15th, they’ll tack on a 3% penalty.

A visual representation of what it feels like to pay 1/3 of your money in taxes. Look, free stock photos can’t all be winners…

When you do taxes, you’ll use your Social Security Number. You can deduct as expenses everything directly related to doing business: advertising, rent, and materials. You shouldn’t be clever about this, and deduct something like your laptop or phone. But you also shouldn’t worry too much about taxes.

I used to worry more about taxes, then I found out the IRS almost never audits people. Seriously, it’s very rare. The only reasons people get audited are:

1. They report nonsense, like a business that has made zero income 5 years in a row.
2. They report something that goes directly against a form, like if you don’t report income that someone else claimed they paid you through a form 990.
3. They report something that is an IRS trigger point, like a home office deduction (the IRS hates those).
4. The IRS gets a tip. Seriously, their single biggest way of busting tax evasion is by disgruntled ex-employees and ex-wives. They take tips super seriously.

Setting your tutoring rate and getting people to pay you as a tutor

As I’ve mentioned before, your tutoring rate is actually part of your brand as a tutor. It’s not just a practicality. Instead, you need to think about striking the balance between two equally true facts:

1. People don’t want to pay too much for tutoring.

2. People will judge the quality of your tutoring based on how much you charge.

To start off with, I’d recommend that you look at how much tutors are charging on Wyzant or Craigslist. Then charge more than 75% of them. Position yourself as a premium service provider, but not as the most expensive option.

I would highly recommend that, when you do get a client, you charge them in 10 hour increments, and require 5 or 10 hours payment upfront (before the first meeting). That’s going to make your life easier in a couple ways:

1. You get more money immediately.
2. There’s less risk of them walking out after 1 lesson, wasting your hard work in getting that client in the first place.
3. There isn’t as much pressure to teach everything you know in the first session (as you know there will be future sessions), which makes the sessions more productive for you and them.

Finally, charging them in 10 hour increments makes your bookkeeping much easier. Instead of worrying every time you meet if they’ve paid you (which gets very confusing once you get a lot of clients), you only have to worry about that every 10 hours. I actually put what hour we’re on (hour 1, hour 2) directly into my calendar.

Dealing with difficult tutoring clients (no-shows, lateness, last-minute cancellations)

As an independent tutor, you will come across people who think they can push you around. Even the nicest person can turn into a jerk if their rent is due and bank account is empty. Here’s how you deal with these people.

First thing, an ounce of prevention is worth a pound of cure. If someone is being overly difficult or irrational during the sales process (negotiating immediately on price, or being habitually late to meetings), then they will likely be a bad client. You should not work with them unless you absolutely need the money. If you do work with them, be prepared to keep a tight leash on them.

Second, payment in advance solves a lot of issues (so a final, final reason to get 10 hours payment in advance). You won’t have to wait for money, and if you ever need to charge them for something, you can simply email them, “Hey, I’ve charged you an hour’s worth of my time. You now have 4 hours remaining of the 5 hours you paid for.”

I employ this tactic a lot with people who are late. If they’re late, I will still end at the agreed-upon time, and charge them as if we met the whole time. After all, I gave the time to use how they pleased. If they want to use 30 minutes of that time by me waiting for them to arrive, that’s their prerogative.

With missing classes, I charge for the whole time if there’s no notice. If there’s less than 24 hours notice, I let it slide once, but warn them by email and say, “Hi, next time could you tell me in advance? Late notice plays havoc on my schedule.” If they’re late again, I charge them.

I pull a similar tactic with more than 24 hours notice cancellations if I feel like my clients are taking advantage of my good nature. I send them a warning, first, then I charge them if they do it again. Fortunately, it’s rare that I actually have to charge people.

One thing that’s important to know is that charging people cancellation fees is a bit of an unfriendly move. When you do it, try to be very apologetic, so as to get them on board as much as possible: “I’m really sorry, but I’m going to have to charge you for the lesson you missed. As I said, it gives me a lot of trouble when people frequently cancel, as it’s hard enough to fit in every student’s lessons as it is. I hope you understand, and I apologize again.”

Setting up web and email hosting for your tutoring

When you get started with a traditional company, you need real estate and a mailbox. When you get started with an online tutoring business, you need virtual real estate and a virtual mailbox. These come in the form of web hosting and email. You can think of your website as the store you build on top of your real estate.

For web and email hosting, I use IWebFusion. That was an affiliate link, by the way. They’re a small company and their prices are pretty cheap. The upside of their being small is that they are nice and have good customer service. The downside is that they don’t have the processes in place of a larger company, so you will need to do more on your own.

If you’re unfamiliar with web and email hosting, and want an easy way to set it up, go with Dreamhost, which is another affiliate link. They’re a larger company with set processes in place for everything you want to do. They are more expensive (like $40 more per year), so it depends on what you want. 

For your website (the “building” on top of your virtual real estate), you should use my WordPress templates. They’re based on the design principles and copywriting tactics that I’ve learned through exhaustive trial and error can convert visitors into clients. You might find prettier tutoring website templates, but you won’t find any that are more effective.  

Where to tutor: finding a place

The place you do your tutoring is not the most important decision you make. As long as it’s quiet, professional, in a reasonable location, and has free, fast Internet, you’ll be okay.

However, if you ever want to charge a respectable amount of money per hour ($100 or more), I’d highly recommend that you join a coworking space. The coworking space I’m at, WeWork, is centrally located near public transportation (important for Boston), has free coffee and fruit-infused water, and provides me with a business address. Plus, it has a great, professional interior design.

WeWork only costs $350/month for a desk, although it’s more for an office. As an investment in credibility, it’s worth it. People are more willing to pay you if you appear professional (which they read as trustworthy). A coworking space is great for that.

WeWork has opened up offices pretty much everywhere. If you live in a city, there’s probably one near you. If you want to schedule a tour of a nearby WeWork, and tip me some extra money (at no charge to yourself), then follow this link to sign up for WeWork.

Regardless of where you choose to work, once you do find a location, put it on your website, Google My Business, and Yelp accounts. First of all, this will make you more trustworthy. Second of all, Internet searches that rely on location (like “tutors near me”) will use your location to provide information to potential clients.