The benefits of running your own online business are numerous – you can work from home, you are the boss, and working just a few hours a day could potentially generate more monthly income than your day job. What’s not to like?
These benefits do come with some administrative down sides however, and being successful in your online job also means being responsible and organized. You will generate income, and therefore you will have to pay taxes on those earnings. It varies slightly from state to state (at least here in the US) but the bottom line is this: if you generate more than $600 a year in income from your side job(s), you will have to file taxes on it. It’s important to note that this dollar amount is for your combined earnings – not just individual sales. In other words, if you had 60 sales of your $10 product or service, you are required to pay taxes on it. If you only have $550 in sales for the year, you are not required to pay taxes on it.
Tips for staying organized when it comes to paying taxes on your online part time job:
- Use a dedicated email account for “pay to” accounts. In other words, use the same email account for PayPal and for all the other payment gateways that you use. That way, all of your transactions (payments received and sent) will be listed in one place – a huge time saver when calculating your monthly, quarterly, and yearly income and expense totals.
- Consider forming an LLC (Limited Liability Corporation) for your online part time job. This will keep your personal and business finances separate, which makes things a lot easier when it comes to filing taxes. LegalZoom.com is a really good place to set up your LLC – they explain the process in very simple terms and walk you trough it step by step. It’s really easy to do.
- Hire a good CPA to handle everything for you. If taxes and paperwork isn’t your thing, it’s best to let a professional deal with it so that you can stay focused on creating great products and services for your online part time job.
As a self employed online business owner, it is very important to keep track of your taxable income. Forgetting to to pay your taxes has very serious money and time-related consequences – you would potentially have to spend hours refiling your taxes for the missed time period, plus you would have to pay the penalty fees that go along with it. When you add all of that up, it could have a massively negative impact to your profitability as an online business owner.