Basic Training: Y is for Yes, You’ll Pay Taxes on Your Home-Based Business Earnings

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on July 18, 2015 in Money & Finance

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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. 

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