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I am 16 years old, located in the United States (Texas), and I am currently embarking upon entrepreneurial endeavors.

The main ways, via those aforementioned endeavors, that I would earn money are through selling SaaS products (Software as a Service), selling advertisement space in websites/mobile applications I build (to earn ad revenue), selling digital products, and through E-Commerce/Dropshipping.

I'm wondering, and considering I am a minor, how much money I have to earn before the US Government requires me to declare it as taxable income (I heard it was 3000 USD), and then, once reaching that ceiling, how it is declared - should it be on a parent's tax returns or by forming an LLC, etc.?

I would appreciate any advice as to not find myself in trouble with the IRS or charged with defrauding the United States. Thank you.

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Congratulations on starting your own business! Business income is taxed whether you're a minor or not; you just probably don't have as much of a deduction if you are still going to be claimed as a dependent on your parents' return. (And you probably would be still claimed as one, unless your efforts are so successful that you start supporting yourself in a substantial way rather than them supporting you.)

How much money I have to earn before the US Government requires me to declare it as taxable income

Well, in order to determine whether you need to file a return when you're a dependent of somebody else, look at Table 2 in Publication 501. For 2018, if you're single, a dependent, not blind, and under age 65, you need to file a return if your unearned income (generally things like bank interest and other investment income) is over $1,050, or your earned income (which your own business would be) is over $12,000. (Or if the combination of them brings you over a threshold as well.)

If you have tax withheld from jobs, or in other circumstances, you might want to file a return and report it anyway, to get a refund of any taxes that were withheld but you don't actually owe.

How it is declared - should it be on a parent's tax returns or by forming an LLC, etc.

Generally earned income you'd get would be on your own tax return. There are a lot of business structures, and I think advising you on whether an LLC is the way to go or not may be a bit beyond the scope of this site (it's certainly beyond my meager understanding). But you could take a look at the IRS site on Business Structures, which tells you the options and what forms would need to be filled out for each of them.

There's a lot of Small Business information on the IRS site, really, and it'd probably be wise to take a look through it if you want to get a better handle on what's involved in taxation of business income.

  • A single owner LLC is a pass-through for tax purposes. Its function is more for limiting liability in case of a lawsuit. This depends more on whether the business has potential risk for such an event. – JTP - Apologise to Monica Apr 24 at 16:25
  • Thank you. I appreciate the information, and I'll look into the items you described. @JoeTaxpayer Indeed, my ideas for forming an LLC were due to the ability to limit liability. As a software developer, and considering my application goes out to uses in the European Economic Area (in addition to the US), I'm required to comply with the GDPR for privacy regulations. There is a 20 Million Euro fine for not doing so, which is where the LLC might come into play as to protect my own assets if such a suit was to be filed in the event that my application(s) were not 100 percent compliant. – Jamie Corkhill Apr 24 at 19:43

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