Do teenage babysitters owe taxes?

BabyOnBlanket

A lot of teenagers make money by babysitting for neighbors. Babysitting is a terrific micro business for a teenager and there are tax advantages that you may not know about.

Babysitters are Considered Household Employees
Babysitters are considered household employees . They are an employee of the family hiring them. A babysitter usually owes income tax on her income from babysitting.The employer also have to pay Social Security and Medicare taxes on their employees behalf. This tax is nicknamed the “nanny tax.”

But, there is a huge exception to the nanny tax for teenagers!

An employer does not have to pay employer taxes if these three conditions exist:

  • the employee is under age 18 at any time during the year and
  • the work is in or around a private residence as an employee and
  • the employee’s main occupation is not providing house hold services. (For a teenager, their primary occupation is to be a student, not a babysitter.)

All three things must be true to be exempt from employer and self-employment taxes.

Example:Sarah, age 16, goes to a neighbor’s house and babysits their three children several times a month. In one month she makes $75. She is a teenage household employee. Sarah will not owe self- employment tax on her babysitting income. If she earns less than $5,700 (in 2009), she will not owe federal income tax either.

If Sarah decides to run a day care service during the summer from her home, she is not be a household employee, but rather a business owner. She will then owe self-employment tax (and perhaps federal income tax) on her profit.

Read more about household employees and the nanny tax in IRS Publication 926 Household Employer’s Tax Guide at http://www.irs.gov/pub/irs-pdf/p926.pdf.

ebookcoverIn my book, Teens and Taxes, I devote an entire chapter to babysitters and other household employee jobs including examples, forms and instructions on how to fill in the tax forms correctly.For $3.00, you’ll get accurate information that’s easy to understand..

Pdf version (easy to read on your computer) $3.00

Kindle version $2.99

Nook/ other ereader versions $2.99

Read more here.

Carol Topp, CPA

Celebrate National Entreprenuership Week! Sale on ebooks

EntrepWeekSaleEbooks

Order your ebooks here.

What’s new in taxes for teenagers?

teens_and_taxes

Teens and taxes ebook available at TeensAndTaxes.com

Not a lot changed in the US tax code for teenagers for 2013, except a few thresholds:

Income tax is paid on earned income greater than $6,100 in 2013 (up from $5,950 on 2012)

Income tax is due on unearned income (usually investment income like interest and dividends) over $1,000 in 2013 (up from $950 in 2012).

The tax for teenagers with both EARNED and UNEARNED income are more complex. The guidelines involve comparing a teen’s gross income (meaning their total income from all sources) to the greater of

  • $1,000 or
  • earned income plus $350 (up from $300 in 2012).

 

If you purchased the Kindle version of my ebook, Teens and Taxes, be aware that it is based on 2012 thresholds. Just keep in mind these 2013 thresholds when preparing a teenager’s tax return.

 

Carol Topp, CPA

 

I need a video editor!

I need to hire a video editor, so naturally I’m going to hire a teen micro business owner.

Here’s the job description.

Qualifications
Knowledge and experience in video editing
A portfolio of your work (Email me the links)
Three recommendations (name and email or phone)

Tasks
Edit a 60 minute video into several clips of 2-5 minutes. I’ll will provide approximate timings for the clips. Each 60 minute video may have 5 to 10 clips.
Intersperse Powerpoint slides I provide into the video clips
Add title and annotations
Submit the video to me for review. Make any corrections or edits I request.
After my approval, upload to my YouTube channel.

Rights to Completed Work
All files produced by you, the contractor, including video files, audio files, graphic images in the course of your work for me shall be the property of Carol Topp. You shall retain no ownership, interest or rights to them.
Any files including video, audio and images provided by Carol Topp to you remain the property of Carol Topp and you have no right to use, reproduce, or distribute them.
You may add  your name, and company name and website to the credits at the end of the video.

Compensation
Quote by the project with an estimate of the time frame to complete the project and your total fee.
If offering an initial discount, please inform me of what future projects will cost.
You are hired as an independent contractor. You will be required to fill out W-9 supplying me with your legal name, address and tax ID.
Payment will be by Paypal. Half at the signing of this contract and half at delivery of the video.

If you’re interested email me (Carol@MicroBusinessForTeens) a quote and your qualifications. A link to some of your video editing work and 3 references I can contact is required too.

 

Free tax software for teen business owners

 

 

There are several sources for you to file a teenager’s tax return for free:

 

Tax Act is the software I use. I use the package for professionals, but you can try their free version: https://www.taxact.com/

 

IRS Free File e-badge
The IRS partners with several software providers in the Free File program: http://www.freefile.irs.gov/

 

For more information on taxes for teenagers visit my other website TeensAndTaxes.com

 

Teenage Taxation Without Representation video

 

Here’s a short video produced by three teenagers on

Teenage Taxation Without Representation

http://vimeo.com/user24314218/teenagetaxation

Teenage Taxation Without Representation (C-SPAN Student Cam 2014) from lei on Vimeo.

You can jump to 4:00 min to see me explain that the self-employment tax threshold of $400 has not been adjusted since 1954!

If it had been adjusted it would be $6,000!

Imagine being able to earn $6,000 before you had to pay self-employment tax! Think that would encourage some teens to start a micro business?

Help me and these teenagers adjust the tax on teen entrepreneurs. Click on the link for a letter you can send to your Representative or Senator.

Eliminate tax on teen entrepreneurs

 

Carol Topp, CPA

What do I need to know about crowd funding and taxes?

crowd surfer © by Photos by Mavis

Question: I’m interested in accepting donations from a crowd funding website. What do I need to know about the taxes?

I’ll do my best to answer your questions, but I have to include this disclaimer:

The Internal Revenue Service hasn’t published specific guidance on the tax consequences of receiving money through crowd funding sites like Kickstarter.

I’ll also explain that I am a very conservative CPA. I do not take risky or unsupported positions. You may get a different answer from another CPA or tax professional.

As the term suggests, crowdfunding is funding from a crowd of people; that is, many people provide small amounts of money to finance something. Crowdfunding has its roots in charitable causes, including the advent of microfinancing to provide financial services to poor people, but has progressed to the online funding of creative and other projects via sites like Kickstarter and Rockethub.

Crowd funding income can be treated as the following:

  1. A donation to a 501c3 tax exempt charity.
  2. Investment in a business by an investor seeking a share of ownership (called equity owners)
  3. Gift given by an individual to an individual. Gifts are typical when no business or potential profit motive is evident. Examples of gifts include a wedding, funding an adoption, helping a family whose house was destroyed by fire or a person with a medical illness.
  4. Taxable income for a for-profit business. Most businesses give a reward in exchange for the income. This reward may be considered a sale of a good and subject to sales tax in your state (and you thought all you had to worry about was federal income tax!)

 

For a micro business owner, #1 and #2 do not apply. It is my opinion that #3 Gift does not apply to micro business owners either

#4 taxable income is the only option that applies to micro businesses launching a crowd funding campaign.

 

Carol Topp, CPA

Here is my disclaimer:

Nothing contained in this email was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code, as amended; (2) any written statement contained on this website relating to any federal tax transaction or matter may not be used by any person to support the promotion or marketing or to recommend any federal tax transaction or matter; and (3) any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter contained in this website. No one, without our express written permission, may use any part of this website in promoting, marketing or recommending an arrangement relating to any federal tax matter to one or more taxpayers.

 

Using crowd funding to raise money for your book, music CD or film project

Credit http://banklesstimes.com/2013/01/10/kickstarter-vs-indiegogo-tale-of-the-tape/

wrote a blog post over at Publishing Basics on

Pros and Cons of Kickstarting Your Project

Kickstarting (or, more broadly, crowd funding) as Phil explains, is  “an Internet-based program where creative people can pitch potential supporters to raise funds to produce a short- or feature-length film, record music, publish a book, and many other products.”

Here’s an excerpt from Phil’s article:

Other People’s Money – Maybe you don’t have the cash or credit to fund your own book, but if you can convince others that your book is worthwhile, you might be able to raise the money. You can remove your risk by raising all of the funds you need.

Don’t underestimate the value of helping others feel good. You’re helping others pay it forward. There is great value in allowing others to help you reach your dreams.

Pre-selling With a New Spin – Pre-selling is tough enough. With Kickstarter you’re basically pre-selling copies of your book (and recognition for the assistance) to your network of friends, family, co-workers, and anyone looking for a way to help.

Read the other pros and cons of crowd funding  here.

 

That got me to thinking (with my CPA-tax mind): How does the IRS see income from crowd funding sources like Kickstarter?

The accounting software company, Outright.com, has an informative page about taxes from crowd-sourcing income.
http://outright.com/blog/accounting-for-crowd-funding-what-you-need-to-know-before-starting-a-kickstarter-campaign/

The IRS will probably see income from crowd funding as exactly as Phil described: pre-selling books. That means the income from Kickstarter is taxable to a micro business owner selling a book or CD.

Sorry, to be a downer here, but you need to know that there is no free lunch when it comes to crowd funding!

Carol Topp,CPA

What is crowdfunding and can a teenager get in on it?

Credit: http://www.salon.com/2013/04/10/kickstarter_just_might_get_you_audited_partner/

What is crowdfunding?

The word seems to be a hot term that’s used everywhere. Anytime someone needs to raise some money for a project they turn to crowd source or crowd fund. But what exactly does that mean? Well Venturebeat.com best describes it as:

“crowdfunding is funding from a crowd of people; that is, many people provide small amounts of money to finance something. Crowd funding has its roots in charitable causes, including the advent of micro financing to provide financial services to poor people, but has progressed to the online funding of creative and other projects via sites like Kickstarter and Rockethub…” Read more on VentureBeat

Can a Teenager Start A Crowdfunded Project?

Crowdfunding may not work for micro business owners under age 18, because legal contracts with minors are not legally binding, so most investors will not make a contact with a teenager.

But with that said, there are a few teenagers that have used sites like Kickstarter to launch their project. In fact, I just wrote a blog post about a teen who crowdsourced an iPad app last week, you should check it out. You might also want to check out his Kickstarter page to see that the project wasn’t launched under Emerson Walker’s name, but his father’s instead. This is most likely because of my reasoning mentioned above, legal contracts with minors are not legally binding.

Keep Good Records and Be Careful Not To Get Audited

Another thing to keep in mind is that any funds that you make off of your crowdfunded project are considered “taxable income” by the IRS. Even though you are not selling a product via a crowdfunding site like Kickstarter, the IRS will see the transaction as a taxable income because the IRS defines gross income from ‘whatever source derived,’. You can read more about this on Salon.com.

But crowd funding is definitely something to keep in mind for your future.

Carol Topp, CPA

 

P.S. Here’s a neat story of how some students pay for college through crowdfunding: New crowd funding site helps kids with little money achieve big college dreams

 

 

Is your age an asset when running a micro business?

Ray Land was a shaggy-haired teenager when he founded Fabulous Coach Co. in 2004. He says he struggled to recruit drivers—and eventually gave in and trimmed his hair. Fabulous Coach Co.

 

There are many benefits to starting a micro business as a teenager including:

  • You know more about somethings than some adults (like Algebra II and social networking)
  • You usually have more energy
  • You can charge less than adults

But can your age be a hindrance to getting respect? Some young entrepreneurs say that being young can be a problem:

From the Wall Street Journal article  Baby Face a Challenge for Entrepreneurs by SARAH E. NEEDLEMAN comes this story:

When Ray Land launched Fabulous Coach Co., a Brandford, Fla., transportation business in 2004, the then shaggy-haired teen struggled to recruit drivers—and eventually gave in and trimmed his hair.

“They didn’t say it was because of my age, but that’s what I’ve always thought,” says Mr. Land, who is now 23 years old. “I keep a very professional look and try to be cautious in how I talk to people. I don’t use the word ‘yo.’ “

The take-away from this entrepreneur:

  • dress nicely
  • look professional
  • use professional language, especially in emails. Avoid text message speak when you want to sound professional.

In other words, use your age as an asset, but don’t let it get in the way of making a sale or serving a customer!

Carol Topp, CPA