I saw somewhere that if you make under $400 as self-employed, you don’t have to pay taxes. Is that $400 a year or what? Why wasn’t this kind of thing taught in school? I’m 20 and feel like I have no clue how to handle money or being an adult.
It’s $400 for the entire year. You can start with this IRS guide: About Publication 17, Your Federal Income Tax (For Individuals) | Internal Revenue Service
Harley said:
It’s $400 for the entire year. You can start with this IRS guide: About Publication 17, Your Federal Income Tax (For Individuals) | Internal Revenue Service
Thanks for linking that, I wouldn’t have known where to even begin.
All the money you make as a sole proprietor should be reported on a Schedule C form. For example, Uber only has to send you a 1099-NEC if you make over $600 in a year. If you make less than that, they won’t report it to the IRS, but technically, you’re still supposed to include it in your taxes. A lot of people skip this, which is tax fraud, not just avoiding taxes.
@Peyton
Not reporting income is tax fraud. Tax avoidance is when you legally use deductions or strategies to reduce what you owe.
@Peyton
If I don’t have any expenses, do I still need to do Schedule C? I got a 1099-NEC for tutoring, but I don’t run a business.
Aris said:
@Peyton
If I don’t have any expenses, do I still need to do Schedule C? I got a 1099-NEC for tutoring, but I don’t run a business.
If you were paid as an independent contractor, the IRS considers that self-employment. So yes, you’d use Schedule C.
Aris said:
@Peyton
If I don’t have any expenses, do I still need to do Schedule C? I got a 1099-NEC for tutoring, but I don’t run a business.
That’s your tutoring business according to the IRS.
Rey said:
@Peyton
So if I sell stuff at a market for cash, does that mean I can just not report it?
If you don’t report it, you miss out on Social Security credits because you’re not paying the self-employment tax. Plus, if you ever get audited, the penalties for not reporting income can be hefty.
Rey said:
@Peyton
So if I sell stuff at a market for cash, does that mean I can just not report it?
Not reporting cash income is illegal. Sure, you might get away with it, but it can cause issues later if you need loans or Social Security. Reporting income also gives access to certain credits.
Rey said:
@Peyton
So if I sell stuff at a market for cash, does that mean I can just not report it?
You could skip reporting it, but that’s tax fraud. If the IRS audits you, you’d face fines. It’s like speeding: you might get away with it, but if caught, there are consequences.
Rey said:
@Peyton
So if I sell stuff at a market for cash, does that mean I can just not report it?
Depends. If you’re selling items for less than you paid for them, that’s not taxable. But if you’re making a profit, you’re supposed to report it.
$400 is the total for the year.
It’s $400 for the whole year. If you’re self-employed and make under that, you don’t have to pay self-employment taxes. These cover Social Security and Medicare, which are usually taken out of your paycheck if you work for someone else. When you’re self-employed, it’s on you to pay them.
I agree schools should teach this stuff, but honestly, most high schoolers wouldn’t pay attention anyway. It should be covered in college or easily accessible for adults. Anyway, $400 is the yearly threshold. Almost everything the IRS does is based on an annual calendar.
If you’re self-employed, you pay regular income tax plus a self-employment tax, which is for Social Security and Medicare. It’s 15.3%, and you pay both the employee and employer portion. If your profit is less than $400 for the year, you don’t owe this tax.