In the video above, I explain the 3 different types of taxes that you may have to pay in your micro business.
The first tax explained in the video is federal income tax. The threshold in 2014 for federal income tax is: $6,200 in earned income (which is the profit from your micro business, not your total sales). I also explain in the video that parents are still able to claim their child as a dependent, even if the student makes their own income. It’s important for teenagers to file their own tax return, separate from their parents’ tax return.
The second tax explained in the video is self-employment tax. This is Social Security and Medicare taxes for self-employed people, like business owners. This tax is 15.3 % of profit over $400. Many teenagers may owe self employment tax on their profits form a micro business, but not owe any federal income tax.
Finally, I explain that a micro business owner may need to collect and pay sales tax to their state government if they sell a product to the final consumer.
For more information about taxes on teenagers, visit TeensandTaxes.com
Carol Topp, CPA