I want to start my own small business selling crafts. What (US) tax forms do I need to file?

Congratulations on living the American dream of being your own boss! Since you mentioned you are the only owner, your business will be a sole proprietorship. In the US, the owner of a sole proprietorship is considered self-employed and you will pay two types of taxes: income tax and self-employment tax. Self-employment tax is the same as Social Security and Medicare tax for self-employed people.

You will report all your income and expenses on an IRS form called Schedule C Profit or Loss from Business, which is part of the Form 1040. You should file your own tax return, separate from your parents. They can still claim you as a dependent on their tax return even though you file a separate return.

You will also fill out Schedule SE to calculate the self-employment taxes owned. The self-employment tax is 15.3% of your net income (profit). Many teens that own small businesses find that they may not owe federal income tax, but do owe self-employment tax. The threshold to start paying self- employment tax is $400 of net income (profit). So if you made over $400 in profit from a micro business, you need to fill out a Schedule SE and pay self-employment tax.

Keep good records of everything you earn and everything you spend in your business. This can help reduce your taxes. 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. 

My book, Money and Taxes in a Micro Business, covers taxes for business owners.

Price $9.95

Read  the Money and Taxes Table of Contents

View Money and Taxes Sample Pages

If you still have questions, I would be happy to answer them! Drop me a line at my contact page and we can get started.

Carol Topp, CPA

The Old Schoolhouse Magazine is offering their fall issue digital edition to read online.

My article on The Benefits of Starting a Micro Business–More Than Just The Money! is on page 144!

(click the picture to read the digital edition)

My daughter is interested in self-publishing her own book. I’ve been checking out CreateSpace and am not sure if it is available to minors. Do you know?

CreateSpace (a division of Amazon) offers a great service to get self-published books in print! Good for your daughter.

Unfortunately, CreateSpace does put up some roadblocks for teenagers.

Here’s the experience of one dad:

https://www.createspace.com/en/community/message/69077

CreateSpace allowed his teenage son to write a book, but required that royalty payments to go to the father’s name. Dad didn’t like this because it made his taxes go up.

The problem is that CreateSpace doesn’t want to enter into an agreement (i.e. the royalty agreement) with minors.

Why not?

The laws of  most states set the age for entering into a legally binding contract at 18.  It’s not illegal to enter into a contract with a minor — just ill-advised, because a  minor can avoid obligations created under the contract (i.e., back out of it) until he/she reaches majority age.

So, help your daughter out and encourage her to self-publish her book. Here’s how you can deal with the royalty payments:

How to deal with royalty payments to a parent, not the teenager

Hope that helps.  Good luck!

Carol Topp, CPA

U.S. Tax Forms © by MoneyBlogNewz

In CreateSpace for minors? I discussed that CreateSpace (a division of Amazon that prints self-published books, CDs and DVDs), will not make royalty payment to minors (teenagers under age 18).

Instead CreateSpace will pay a parent, but not the teenager.

Here’s how to handle the situation:

1. A parent (say dad) agrees to accept the royalty payments in his name (even though his daughter wrote the book, her name is on it, and she deserves the cash from royalties!)

When dad gets a royalty check from CreateSpace, he gives the cash to his daughter.

2. Dad may get a tax form (1099MISC) at the end of the year showing how much CreateSpace paid him in royalties from his daughter’s book. If he doesn’t get the tax form from CreateSpace, he should still do step 3.

3. Dad MUST include this information on his tax return on Schedule C Profit or Loss from Business (even though he doesn’t technically have a business).

4. Dad should then include all the money he gave to his daughter on his tax return as a business expense. Put it on line 27 Other Expenses on the Schedule C with the explanation on page 2 of the form “Income assigned to Daughter’s name.”  This is to explain to the IRS that dad accepted the money (income) on behalf of his daughter, but it’s really hers (assigned to her).

If he does it correctly, the bottom line on dad’s Schedule C will show a big , fat zero. There will be no profit from his business and no additional tax to pay. It all transferred to his daughter.

5. Daughter must also fill in a Schedule C on her own tax return. I cover that in my book, Money and Taxes ins Micro Business.

Money and Taxes in a Micro Business

Price $9.95

Read  the Money and Taxes Table of Contents

View Money and Taxes Sample Pages

Carol Topp, CPA

Interview with Hannah Keely on

Teaching Your Kids About Managing Money (when you’re not doing so great yourself).
And how to help your kids start a micro business.

How to Teach Kids About Managing Money (When You’re Not Doing So Great Yourself)

So you don’t consider yourself a financial role model. Take heart, you can still teach your kids financial principles. This interview offers tips on how to teach your kids the money basics as part of your busy lifestyle. We’ll also discuss what topics to teach at each age from preschoolers to college age.

Here’s a helpful handout: How to Teach Kids About Managing Money

Carol Topp, CPA

I’m being interviewed on The Sociable Homeschooler today (Friday July 22, 2011) at 9 am EST on teaching our kids about money and starting a micro business.

Listen in at http://toginet.com/shows/theso?ciablehomeschooler

Handout for How to Teach Your Kids About Money

Hope you enjoy the show!

Carol Topp, CPA