Side businesses: When is it a business?
While I wouldn't suggest starting your own business on a full time basis to most people. Many of us have some skill that we could use on a part time or occasional basis to bring in a little extra income. Philip has recently started giving voice lessons. Perhaps you make jewelry or can fix bikes. I have a friend up in Kentucky who caters on the side.
Theoretically the IRS wants you to report all income, even from these occasional jobs. However if you make under $400/year, you probably don't need to worry about Self-Employment tax.
According to the IRS on the Instructions for Schedule C: "An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business...."
Babysitting is a good example (and a nice way to pick up a little extra). If you babysit only a handful of times over the year then you don't have a business, however if you do it every week as I do, then you probably should be considered a business. (Just to throw another twist on it, if you babysit for a single family, going to their house weekly, then you are probably considered a household employee and not in business for yourself.)
There are some friends and family exclusions, though you need to check the laws carefully. For instance if you do household chores for your grandmother every week, and she gives you $50 for being such a big help to her...that probably doesn't need to be reported. Same if you give your parents $200 in "rent" for living in their spare bedroom, or own your own home and rent out a room to a buddy (as long as you're living in the house)...in most cases that doesn't need to be reported.
Pratically, it's highly unlikely that anyone will come after you for not reporting the $30 you earned babysitting or the scarf you knitted and managed to sell for $20, or even the $150 you managed to bring in unloading all the junk during your last yardsale. However when you exceed $200 in profit and are doing something more than once a month (or on an ongoing basis), you should double check local laws and make sure you're keeping your nose clean. On crafting projects in particular, don't forget to factor in your cost of goods. You may sell a necklace for $60, but if you used $55 worth of materials, you only made a $5 profit.
And there are some advantages to properly reporting additional income, it can help with your credit and apartment applications if you can show more income. And if you're lucky enough to be making enough to worry about Self-Employment taxes it can help by increasing your SS benefits. Also if you think you might want to try a full time business someday, doing something part-time can help you get your feet wet and minimize your risk. Reporting a loss from an attempted business can also save you money on your taxes, but doing this too often will put you on the IRS radar (after 3 years, I think you're automatically reclassified as a hobby).
Note: Double check all this info with the IRS, etc., cause the rules can change from year to year, and your state may have additional requirements.
Questions: Do you do anything on the side to supplement your income? Or have you considered doing so?
Theoretically the IRS wants you to report all income, even from these occasional jobs. However if you make under $400/year, you probably don't need to worry about Self-Employment tax.
According to the IRS on the Instructions for Schedule C: "An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business...."
Babysitting is a good example (and a nice way to pick up a little extra). If you babysit only a handful of times over the year then you don't have a business, however if you do it every week as I do, then you probably should be considered a business. (Just to throw another twist on it, if you babysit for a single family, going to their house weekly, then you are probably considered a household employee and not in business for yourself.)
There are some friends and family exclusions, though you need to check the laws carefully. For instance if you do household chores for your grandmother every week, and she gives you $50 for being such a big help to her...that probably doesn't need to be reported. Same if you give your parents $200 in "rent" for living in their spare bedroom, or own your own home and rent out a room to a buddy (as long as you're living in the house)...in most cases that doesn't need to be reported.
Pratically, it's highly unlikely that anyone will come after you for not reporting the $30 you earned babysitting or the scarf you knitted and managed to sell for $20, or even the $150 you managed to bring in unloading all the junk during your last yardsale. However when you exceed $200 in profit and are doing something more than once a month (or on an ongoing basis), you should double check local laws and make sure you're keeping your nose clean. On crafting projects in particular, don't forget to factor in your cost of goods. You may sell a necklace for $60, but if you used $55 worth of materials, you only made a $5 profit.
And there are some advantages to properly reporting additional income, it can help with your credit and apartment applications if you can show more income. And if you're lucky enough to be making enough to worry about Self-Employment taxes it can help by increasing your SS benefits. Also if you think you might want to try a full time business someday, doing something part-time can help you get your feet wet and minimize your risk. Reporting a loss from an attempted business can also save you money on your taxes, but doing this too often will put you on the IRS radar (after 3 years, I think you're automatically reclassified as a hobby).
Note: Double check all this info with the IRS, etc., cause the rules can change from year to year, and your state may have additional requirements.
Questions: Do you do anything on the side to supplement your income? Or have you considered doing so?