If you file a Schedule C with your family's Form 1040, all business expenses will be deductible.
If you don't file a Schedule C but claim your music income on the front side of Form 1040, your business expenses will not be deductible.
Why would you want your business expenses to be deductible? Because when they are, you are able to reduce your business income. In turn, this reduces the amount on which your family owes taxes and increases the amount of money you actually have to spend.
Business deductions include books and printed music (most accountants think CDs and tapes also qualify here), journals/magazines, office supplies, postage, photocopying, convention expenses (transportation, hotel, meals, rental car, tips, etc.), perhaps concert tickets (considered as an educational expense needed to keep currnet in your field - - but talk this one over with your adviser), insurance, mileage when your car is used for business purposes, entertainment expenses, and so on.
You also can -depreciate- your equipment used in your business, such as a computer, software, bookcases, filing cabinets, desks, and so on. Depreciation is a kind of deduction you claim over a period of several years rather than all at once. ("All at once" is called a write-off. You can claim as an expense a purchase which ought to be depreciated. Your accountant will know all about Section 179.)
Another important deduction is for an office in the home, which is quite common for designers. If you claim a deduction for office in the home, this can be a large sum, as it includes part of the mortgage or rent, heating, electricity, property taxes, and so on.
Obviously, a Schedule C is worth the effort. If you keep good records, it's not a huge effort, really.
If you claim the deduction for office in the home, you will reduce the amount of money you may put in your retirement fund.
This is because the maximum contribution is based on the number shown -after- subtraction for the home office deduction.
Taking the office in the home deduction also affects the amount of profit on which you do not have to pay taxes when you sell your home at retirement and move into something smaller and less expensive. Which is to say, you'll have to pay tax on a larger amount.
Long term, taking the office in the home deduction usually is harmful. (Do consult your accountant! Your situation might be different. This is just a general statement and applies to most teachers.)
Unless you are going hungry, I propose that the retirement money later is more important than the deduction now. This is your decision, of course. Consult your accountant if you need help in constructing scenarios.
It's perfectly ok to be in the hole after your deductions have been taken (that is, not only do you not have a profit, but you've lost money being in business). A problem occurs if you operate at a loss for too long. The IRS says you must have a profit in at least three of the last consecutive five years. If you can't show a profit in three of five years, the IRS may say you are running a "hobby business."
So, still file a Schedule C.
When you have a Schedule C loss, this number will be subtracted on the front page of Form 1040, thus reducing the family's AGI [Adjusted Gross Income]. The lower the AGI, the lower the amount on which tax is calculated, and, therefore, the lower amount of dollars in tax you must pay.
This is exactly what it sounds like: you make a little business out of your hobby so you can write off hobby expenses and thus entertain yourself at the IRS's expense. Naturally, the IRS frowns on this!
To prevent your business from being ruled a hobby business, besides producing a profit in three of the past five years, the IRS looks favorably on the following events:
If, in the last three out of five years, your gross income has been less than the deductions claimed, the IRS may ask you to convince them that your motive was profit, not recreation.
Nevertheless, the spector of being declared a hobby business should not keep you from filing a Schdule C. Yes, you derive personal pleasure from playing the piano, but this does not negate the facts that you have advertised, have a separate checking account, and are teaching. My recommendation is to ahead a file, even if you have a loss.
I am not an accountant! Please consult yours for specific advice (this is another indicator that yours is a true business whose motive is to make a profit, not a hobby business designed to make your hobby expenditures deductible).