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I want to start my own small business selling crafts. What do I need to report?
Congratulations on living the American dream of being your own boss! You are considered self-employed and will pay two types of taxes: income tax and self-employment tax (called SE tax). SE Tax is the same as Social Security (FICA) and Medicare for self-employed people.
You will report all your income and expenses on an IRS form called Schedule C Profit or Loss from Business when you file a 1040. Many teens that have small businesses find that they do not owe federal income tax, but do owe self-employment tax (at 15.3% of their profits!).
Keep good records of everything you earn and everything you spend in your business. It is a good idea to talk to an accountant when you start your business. He or she will also be able to help you with issues like sales tax. Chapter 5 covers taxes for business owners.
BTW, the threshold to start paying self employment tax is $400. So if you made over $400 in profit from a micro business (like selling on eBay!), you need to file a tax return.
My ebook Teens and Taxes walks you through filling out a tax return for a teenage business owner. Order a copy today. Available for immediate download.
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P.S. Visit my other website MicroBusinessForTeens.com to learn how a teenager can launch a micro business.
Carol Topp, CPA
