Self-Employment & Taxes: Teaching Kids About Business & Deductions

In today’s world, more kids and teens are becoming young entrepreneurs. Whether it’s selling homemade crafts, offering tutoring services, or running YouTube channels, many young people are earning money outside of traditional jobs. But with self-employment comes tax responsibilities, and understanding them early can prevent financial mistakes in the future.

📌 What Kids Will Learn in This Guide:
✔ What self-employment means and how taxes work
✔ Why young entrepreneurs may need to file taxes
✔ What tax deductions are and how they save money
✔ How to track income and expenses for tax season

If your child dreams of running their own business, teaching them about self-employment taxes is one of the most valuable money lessons they can learn!

1. What Is Self-Employment?

A self-employed person is someone who earns their own money by providing products or services without working for an employer. This means they are their own boss and responsible for their own taxes and business expenses.

📌 Common Self-Employment Jobs for Kids & Teens:

✔ Babysitting or tutoring 💡
✔ Selling handmade crafts or baked goods 🎨🍪
✔ Running a YouTube channel, blog, or social media account 🎥
✔ Reselling items online (eBay, Etsy, or Poshmark) 📦
✔ Mowing lawns or offering pet-sitting services 🌱🐶
✔ Writing or coding services ✍💻

💡 Example: If a teen earns $2,000 by selling t-shirts online, they are considered self-employed and may have to pay taxes on that income.

2. Do Kids Need to Pay Taxes on Self-Employment Income?

Not all kids need to file taxes, but there are specific rules they need to follow.

📌 Self-Employed Tax Rules for Kids:

✔ If a child earns less than $400 from self-employment, they do not have to pay self-employment taxes.
✔ If they earn $400 or more, they must file a tax return.
✔ If taxes were withheld from their paycheck, they should file a return to get a refund.

💡 Example: If a teen makes $1,000 babysitting and no taxes were withheld, they must report that income and pay self-employment taxes.

3. What Is Self-Employment Tax?

Most employees have taxes automatically taken out of their paychecks. But self-employed individuals must pay taxes on their own, which includes:

📌 Self-employment tax = 15.3% (for Social Security & Medicare)

✔ Employees: Taxes are withheld from their paycheck
✔ Self-employed individuals: They pay their own taxes

💡 Example: If a teen earns $1,000 from graphic design work, they might owe $153 in self-employment taxes.

4. What Are Tax Deductions & Why Are They Important?

Deductions lower the amount of income that is taxed, meaning self-employed individuals can keep more of their money by writing off business expenses.

📌 Common Tax Deductions for Young Entrepreneurs:

✔ Supplies & materials – Paint, paper, yarn, ingredients, etc.
✔ Website & domain fees – Hosting, web design costs.
✔ Marketing expenses – Business cards, online ads.
✔ Phone & internet bills – If used for business.
✔ Equipment – Computers, cameras, or software.
✔ Transportation costs – Gas or bus fare for business-related travel.

💡 Example: If a teen earns $1,500 selling homemade candles but spent $500 on supplies, they only pay taxes on $1,000 (after deductions).

5. How to Keep Track of Income & Expenses

Good record-keeping makes tax season easier and helps self-employed individuals maximize deductions.

📌 Best practices for tax season:
✔ Use a notebook or spreadsheet to track earnings.
✔ Save all receipts for business expenses.
✔ Keep digital invoices or sales records.
✔ Separate business & personal money by using a different bank account if possible.

💡 Fun Challenge: Have your child create a profit & loss sheet to track their business expenses and earnings for a month!

6. How to File Taxes as a Self-Employed Kid

If your child earns enough money to file taxes, here’s what they need to do:

📌 Steps to Filing Self-Employment Taxes:

✔ Step 1: Gather all income records & receipts for expenses
✔ Step 2: Use IRS Form 1040 + Schedule C (for business income)
✔ Step 3: Report total income minus deductions
✔ Step 4: Calculate self-employment tax (15.3%)
✔ Step 5: File online or with a tax professional

💡 Tip: If your teen earns a lot from their business, they may need to make quarterly tax payments instead of waiting until the end of the year.

7. Self-Employment Tax Myths (And the Truth!)

🚫 Myth #1: "Kids don’t need to file taxes."
💡 Reality: If they earned over $400 from self-employment, they must file.

🚫 Myth #2: "If I don’t get a W-2, I don’t have to pay taxes."
💡 Reality: Self-employed individuals don’t get W-2s but still pay taxes.

🚫 Myth #3: "I can’t deduct expenses if I don’t have a business license."
💡 Reality: All business owners—even kids—can deduct business-related expenses.

8. Why Learning About Taxes Is Important for Young Entrepreneurs

📌 Teaching kids about self-employment taxes helps them:
✔ Run a successful business 📈
✔ Avoid tax penalties 🚫
✔ Save money with deductions 💰
✔ Develop strong financial habits ✅

💡 Fun Activity: Have your child estimate their taxes for the year and see how much they can save with deductions!

🚀 Download Timmy Talks Taxes – Instant Digital eBook! 🚀

📚 A fun and educational guide that teaches kids and teens about taxes in a simple and engaging way!
💰 Perfect for parents who want to teach financial literacy early!

👉 Click here to get your instant digital download now!
🔗 www.childrentowealth.com/product-details/product/timmytalkstaxes

Help your young entrepreneur master self-employment taxes today! 🏦💰