Home-Based Businesses Beware
Cottage industries have existed for thousands of years. Ordinary people sell goods and services on a small scale to supplement their income. Once this may have looked like selling eggs, mending fences, or sewing quilts. It doesn’t look all that different today.
But, a person selling goods and services is operating a business. Increasingly, local entrepreneurs are evading taxes and hiding from laws by operating small businesses off the books. Facebook, Craigslist, and other online haunts have become marketplaces, not just for legitimate businesses, but for people hawking homemade scarves, orders of cupcakes, or cleaning services.
This kind of homespun entrepreneurship doesn’t intend to grow large and it tends to wax and wane with the seasons or with a person’s free time. It may never threaten the big chain stores or bring in significant revenue. It may be easy for the operator to downplay their actions, but they are still running a business, however small. In America, that means that the business owner has a number of responsibilities – to their customers and their government.
Anyone who is selling anything is likely subject to pay taxes on that income and also may need specific licenses or registrations. There are rare exceptions, of course, and this is not intended to be an all-inclusive primer on running a small business. For example, most people operating cottage industries will likely be filing taxes as a sole proprietor. This means they have an income tax liability and may also need to pay a self-employment tax. Individuals who have earned more than $400 net income in a tax year from “self-employment” must also pay self-employment tax.
This applies even if a person has a full-time job. The income they earn from a side business, a hobby, craft shows, farmers’ markets, or any other venture is self-employment income.
Businesses are also subject to other regulations, most of which ensure the customer’s safety and protect the business. For example, most food sold for a profit must be prepared in a commercial kitchen. Hint: your home kitchen is probably not a commercial kitchen. Yet, today alone, I scrolled through a Facebook group to see multiple individuals selling food out of their homes. It’s probably delicious. It’s also illegal.
There are many legitimate ways to operate a small business out of your home and a lot of the multi-level marketing companies like Mary Kay and Avon provide extensive resources to help ensure representatives are paying taxes and following local, state, and national laws.
But, when individuals go outside the system, it hurts everyone. It hurts customers, it could hurt the business, it hurts the economy, and it hurts small businesses that are playing by the rules.
If you’ve ever wondered if you need a license or how to file taxes as a business, there are real people who can help answer your questions and direct you to additional resources to help make your business even more successful. Call Christine Cavil toll-free 1-800-532-1216
or email her at [email protected] for more information.
This blog was originally published as an editorial in the Derby Informer.
Image source: www.alreadypretty.com