E-Commerce & Taxes: What Kids & Families Should Know About Business Taxes

Many kids and families are launching their own online businesses—whether it’s selling handmade crafts, print-on-demand products, or reselling items. But one important part of running a successful e-commerce business that most people forget about is TAXES!

💡 Did you know? The moment you start making money online, the government considers it taxable income. That means even kids who start an online store may have to deal with taxes!

In this guide, you’ll learn:
✔ What business taxes are and how they work for e-commerce
✔ The types of taxes online sellers might have to pay
✔ How to keep track of income and expenses for tax time
✔ Tips for staying compliant and avoiding penalties

Understanding taxes early helps young entrepreneurs build a strong, profitable business!

1. What Are Business Taxes & Why Do They Matter?

Taxes are a portion of the money a business earns that must be paid to the government.

📌 Why does this matter?
✔ If you make money from selling online, you might owe taxes
✔ The IRS and state tax agencies track business income
✔ Not filing taxes could result in penalties

📝 Simple Rule: If your child’s e-commerce business makes more than $400 per year, it’s best to learn about taxes now!

2. What Types of Taxes Do Online Sellers Pay?

There are three main types of taxes that e-commerce businesses need to know:

✅ 1. Income Tax (Federal & State) 💰

✔ If a business makes a profit, the IRS and state may require income tax payments.
✔ Parents can report their child’s earnings on their tax return OR kids may need to file a separate return if they earn over the standard deduction amount.

📌 Example:

• If Leah’s Online Store makes $2,000 in sales and spends $500 on expenses, her profit is $1,500.

• This profit is taxable!

✅ 2. Self-Employment Tax 🏢

✔ If a person works for themselves (instead of having an employer), they may have to pay self-employment taxes (Social Security & Medicare).
✔ Kids who own an online business might need to set aside money for this tax.

📌 Rule of Thumb:
If your child earns more than $400 from their online store, they may owe self-employment tax.

✅ 3. Sales Tax 🛍

✔ Some states require online sellers to collect sales tax from customers.
✔ This depends on where your business is located and where customers live.
✔ Platforms like Shopify, Etsy, and Amazon can automatically collect sales tax for sellers.

📌 Example: If Leah’s Online Store is in Texas, but a customer buys from California, she may need to charge sales tax for California.

3. How to Keep Track of Income & Expenses for Taxes

Good record-keeping makes tax time easier! Here’s how to track finances properly:

📌 3 Steps for Tracking Business Taxes

✅ 1. Record All Income 📝

✔ Keep a sales log of every order, including:
✔ Date of sale
✔ Amount received
✔ Customer location (for sales tax)

💡 Use a simple spreadsheet or accounting software to organize this data!

✅ 2. Track Business Expenses 💵

✔ Keep receipts for materials, shipping, website costs, and ads.
✔ Expenses can be deducted from income to lower taxable profits!

📌 Example:

• Sales: $5,000

• Expenses (Supplies, Shipping, Ads, Website): $2,000

• Taxable Profit = $3,000 (Only this amount is taxed!)

💡 Tip: Keep business money separate from personal money by using a business bank account!

✅ 3. Set Aside Money for Taxes 🏦

✔ A good rule is to set aside 20-30% of profits for taxes.
✔ This prevents a big tax bill surprise at the end of the year!

💡 Pro Tip: Open a separate tax savings account and deposit a small amount each month.

4. How to File Taxes for an Online Business

Parents can help kids file taxes properly by following these steps:

✅ 1. Determine If a Tax Return is Needed

✔ If a child earns less than $400 from their business, they may not need to file.
✔ If a child earns more than $400, taxes should be reported on a tax return.

✅ 2. Report Business Income on Tax Forms

✔ If the child is under 18, parents may be able to report earnings on their own tax return.
✔ If the business is profitable, filing a Schedule C form (Profit or Loss from Business) might be required.

💡 Tip: Use a tax professional or software like TurboTax to help!

✅ 3. Pay Estimated Taxes (If Needed)

✔ If the business makes a lot of profit, quarterly tax payments may be required.
✔ This is common for successful kid entrepreneurs who make thousands of dollars online.

📌 Example: If Leah’s Online Store made $10,000 profit, she should pay taxes throughout the year instead of waiting until April.

5. Staying Compliant & Avoiding Tax Problems

📌 How to Avoid Tax Mistakes:
✔ Keep good records (track sales & expenses carefully).
✔ Save money for taxes (avoid last-minute stress).
✔ File taxes on time (penalties apply for late payments).
✔ Use tax software or get help (ask a professional if unsure).

🚀 Get Leah’s Online Store – Instant Digital eBook! 🚀

📚 A must-have guide for young entrepreneurs who want to master e-commerce success!

✔ Learn how to set up and run an online store!
✔ Discover how to manage business finances!
✔ Get expert tips on handling taxes for young business owners!

👉 Click here to download now!
🔗 www.childrentowealth.com/product-details/product/leahsonlinestore

Help your child build a profitable online business today! 💰📱