YES, I pay taxes!
Even if you don’t make enough to owe taxes, technically the IRS still wants to know about it.
The IRS makes a distinction between a money-making hobby and a money-making business. If you are for profit, you are a business to the IRS. And you’re all about making a profit, right? Of course!
Whatever you consider yourself, if you make money from your activities for at least three out of the last five years, the IRS will label you a business. That gives you some special hoops to jump through.
Let’s continue on with the assumption that you want to make decent chunk of change from whatever it is you do on the side. We’ll also say you want that income to be sustainable over a period of years.
Regardless of why the IRS says there’s a difference between a “hobby” and a real business, there’s another factor here to consider. It’s important to take yourself seriously! If you want to create a side or small business to continue earning money in a big or more professional way, you need to treat things that way from the start: as a business.
Having the right mindset will set you up nicely for success. If you take yourself seriously, as a real business, then other people will too.
“Do I have to pay taxes on, even though I only made X amount?”
Again, the answer is probably YES. You have to pay taxes — and regardless of whether you owe or not, the IRS expects you to report all income (no matter how small).
This means keeping careful records is critical. You want to claim every deduction you qualify for and write off expenses where you can to ensure you keep your tax bill as low as possible.