2020 was definitely a defining moment in realizing we could earn income on our terms. Many people started new businesses or took their side hustles to the next level.
As I speak to many of these business owners, I hear a tone of humility and downplaying of their business:
"It's just a little extra income on the side."
"It's not a real business."
"I am not making enough to file taxes."
The truth is that even if you earn $1 from a sale, you are in business and have business income. There is no minimum at which you are taken seriously. These limits are self imposed.
You are in business the moment you decide to sell something. You must report all business income and expenses on a tax return to accurately report your income. If you under-report income, you can face penalties and interest adding up.
If you did not earn much income, you can still deduct up to $5,000 in startup costs for the business and then spread the remainder out over the following five years. You still need to report the activity though.
In addition, many states require you to submit an annual report if you have an LLC or Corporation. It is important you do this whether or not you had income because this annual report is also the renewal of your business entity in the state. Many states can dissolve your entity if you fail to report or can impose penalties.
The point is that the Federal, state and local governments all treat your business just as they would a Fortune 500 company. It's time that you take your business just as seriously.