Taxes and work?

Question

For the past several months, I've been getting requests from people to get their gowns and clothes altered. I've been making good money and was wondering if I have to pay taxes and file taxes next year or something cause it's sorta like my own little business? What are the rules regarding this?

The reason I ask is cause I know some people who have jobs like mine and don't file taxes or anything, but I don't want to get in trouble or anything.
Any ideas?

Answer 1

You are supposed to if you make more than $400.00 net income but it's up to you. Here's what I found.

Filing Requirements for Self-Employed Individuals

Self-employed individuals, sole-proprietors, independent contractors and persons who have net earnings of $400 or more are required to pay self-employment tax by filing Schedule SE (PDF), attached to their Form 1040, U.S. Individual Income Tax Return. Employees of a church that receive income of $108.28 or more, but do not receive a Form W-2 for the earnings must also pay self-employment tax by filing a Schedule SE, attached to Form 1040, U.S. Individual Income Tax Return.

As a self-employed individual (someone who owns an unincorporated business) or an independent contractor, you are required to report income and expenses on a Schedule C (PDF) or C-EZ (PDF). Your net profit may be subject to SE tax. You must file a completed Schedule SE attached to your Form 1040, U.S. Individual Income Tax Return.

As a member of a partnership that carries on a trade or business, or as a member of a Limited Liability Company (LLC) that chooses to be treated as a partnership, your distributive share of its income or loss from that trade or business is included in your net earning from self-employment. These entities must report the business income and expenses on Form 1065, U.S. Return of Partnership Income, along with a Schedule K-1 reporting each partner's net income or loss. You must file a completed Schedule SE attached to your Form 1040, U.S. Individual Income Tax Return.

If you have employees, you must pay employment taxes, including Federal income, Social Security, and Medicare taxes.

If you manufacture or sell certain products, operate certain kinds of businesses, use various kinds of equipment, facilities, or products, or receive payment for certain services, you may need to pay excise taxes.

Estimated tax is the method used to pay (including SE tax) on income not subject to withholding. You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax, of $1,000 or more when you file your return. Use Form 1040-ES (PDF) to figure and pay the tax.

Answer 2

If this is going to be your business, then you will need to keep a set of books and remit income tax as a business. If you register your business, then you will also have to collect local sales tax on your work but you will be entitled to recover or avoid paying taxes on your purchases. Check with your provincial/state government for specific requirements for small businesses.

Answer 3

It's more than "sorta like" your own little business, it is, and what you are earning is income. And yes, you are legally required to pay taxes on it. Sure, there are people who evade taxes on home businesses - and they can be in major trouble if and when they get caught.