Here’s the lowdown on taxes when it comes to home-based businesses. If you earn money on it, no matter how little, plan on paying taxes. Doesn’t matter that it’s for a little “walking around” pocket change, for the baby’s diaper fund or to help Grandma get her heart medications.
Q.: I was thinking about doing something from home–gift baskets or cookies–because I am a stay-at-home mom. I was wondering if I would have to pay taxes if I made these items and sold them to make a little extra money. Also how would I go about checking to see if the business name I want has been taken? Is there a specific website for that? And can I advertise on one of those free websites?
A.: Let’s leave aside for now the morass of food licensing issues that arise if you use your home kitchen for a food-based business. The IRS takes the position that whatever income you generate through a business activity, no matter how small and no matter whether it’s a home-based business or otherwise, is taxable . . . so yes, you’d generally have to pay taxes on what you earned. An exception is if your legitimate business expenses outweigh your income but, in that case, you’d be losing money on your products (which brings up other headaches).
In terms of checking the business name, if you plan to form a corporation or LLC, your state’s secretary of state may have a website where you can check business names. Or if you just plan to file a fictitious name (or DBA), you’ll want to go to the offices of your local county clerk (usually you have to go there in person; not that many have business name records online).
From there, however you want to advertise your products is up to you. However, I’d strongly recommend that you put together some form of business plan so you can be crystal clear about your product expenses, advertising budget and competition for your target market. I’ve encountered a lot of people who have run headlong into business ideas that they thought would make them easy money, then ran out of cash before they could really get them off the ground. I’d hate for that to provide an extra strain on your family. Consult with your local Small Business Development Center. You can find a list of centers near you at http://www.sba.gov/aboutsba/sbaprograms/sbdc/sbdclocator/SBDC_LOCATOR.html. They should be able to give you all of the basic information you need to get started and have many programs available for free.
This entry was posted on Friday, May 29th, 2009 at 10:15 am and is filed under Basic Training. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.One Response to “Basic Training 05-29-2009: Y is for Yes, You’ll Pay Taxes on Your Home-Based Business Earnings”
Leave a Reply
June 1st, 2009 at 12:42 pm
Yes, yes, yes! I can’t tell you how many ways folks try to spin the “I shouldn’t have to pay taxes on this business.” Believe it or not, many people start a home based business in order to earn extra tax-free income. The approach I tell everyone is to legitimize your business so that you can be successful. That means acquiring any necessary licensing, setting up any necessary tax accounts, insurances, etc. Whatever it takes to operate your business on a legitimate tip, you must do it to be successful. Stop trying to take short cuts.