Today, I am thrilled to present this guest post by Carol Topp, owner of Teens and Taxes. I always get asked the question, ‘how much do I need to pay in taxes?’ and I’ve never known the answer… Until now.

Did you earn money last year by running a business, babysitting, mowing grass or buying and selling on eBay? If so, you are probably going to have to pay taxes. Unfortunately the U.S. tax system doesn’t give tax breaks to young entrepreneurs.

Here you will find everything you need to know about taxes for a new business.

Every business owner in America pays at least two types of taxes: federal income tax and self- employment tax.  There are several other types of taxes including sales tax and state income tax, but federal income tax and self-employment tax are the two largest.

Federal Income Tax

If you made $5,700 or more in 2009, you will need to pay federal income tax. This income can come from being an employee or from owning a business. $5,700 is the typical amount of a deduction for a single person. It is adjusted by a few hundred dollars every year.

Americans report their income and tax due on a Form 1040. Be aware that business owners report their profit on a form called Schedule C Profit or Loss from Business and attach it to the Form 1040.  Go to the IRS website to see what it looks like: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf.

Schedule C is for sole proprietors (meaning only one owner); different forms are used if you are a partnership or a corporation. On the Schedule C, a business owner lists all his income and expenses by certain categories that the IRS picked out. You may notice that these categories may not fit your business. For example, there is no category for internet fees.

A CPA (Certified Public Accountant) can be very helpful in sorting out your records and filling out the Schedule C correctly. I put an example of a teenager’s Schedule C in my book Teens and Taxes: A Guide for Parents and Teenagers.

Your “bottom line” on the Schedule C is your profit, or what the IRS calls net income. That amount is what gets taxed.

The American tax system is graduated, sort of like a wedding cake in layers, called brackets.  The bottom layer is income under $5,700 and that is not taxed at all, the next layer up to $8,375 in income is taxed at 10% and the the next layer up to $34,000 is taxed at 15% (these thresholds are for single people in 2009).  Most American families fall in the 15% tax layer (or bracket).  Most teenagers are in the 0% or 10% brackets.

Self-Employment – The Hidden Tax

You probably know about federal income tax, but you may not be aware of another tax on the Form 1040, called the self-employment tax (or SE tax). SE tax is Social Security and Medicare taxes for self-employed people and business owners.

The SE tax rate is approximately 15.3% of your profit. If a teenage business owner has a profit of $400 or more, he will owe self-employment tax. The $400 threshold has not been adjusted in decades. Many teens who have a business may not owe federal income tax, but they do owe self-employment tax (at 15.3% of their profits).

For example, Tom is a teenager with a nice-sized profit of $7,000 in 2009 from his business. Tom will owe $81 in federal income tax. Not too bad. But, Tom also will owe $989 in self-employment tax. He owes more in self-employment tax than in federal income tax!

I call the self-employment tax a hidden tax because a lot of new business owners don’t know about it.  And it is buried in the middle of the back page on the Form 1040 and is pretty easy to miss.

How to Prepare for April 15

Taxes are due on April 15 and unfortunately the IRS wants their money.  Make sure you plan ahead for the fact that you will owe federal income tax and self-employment tax on your profit.

How much will you owe?  That’s a difficult question to answer because it depends on your expenses and other income you might have.  The best thing to do is visit a CPA who can help you estimate your taxes. But as a rough rule of thumb, save 25-30% of your profit to pay your federal income tax and your self-employment tax. You may need to pay your state and city income tax as well.

Does it sound like a lot of your hard-earned money is going to taxes? The best way to keep taxes low is to keep good records of all your expenses, plan ahead and work closely with a CPA who can advise you.

P.S. If you earned money babysitting or mowing grass, there might be special tax breaks for you. You may be what the IRS calls a ‘household employee’ and do not have to pay self-employment tax.  Visit TeensAndTaxes.com for details.

By the time he was in the eighth grade, at 13-years-old, Emil had taken out his first loan: $8000 to purchase a commercial lawn mower. He paid off his four-year loan in two years.

It was the beginning of Motycka Enterprises, LLC – a company which currently provides work for about 65 people in Northern Colorado. Motycka Enterprises offers everything from building and janitorial maintenance to lawn care, tree care, snow removal, and even Christmas light installation. The company helped Emil to earn $135,000 his senior year of high school.

Emil is currently a senior at the University of Colorado’s Leeds School of Business, in Boulder, Colorado.

The following is a short excerpt from 50 Interviews: Young Entrepreneurs (Volume 1).

Q. What is the single most important reason for your success?

A. I think it’s my good looks [laughs]. Actually, I think we’d be bankrupt if we put it on that.

The real answer is work ethic and determination. If the job’s not done then it’s not done, but it will be done before I quit. I only leave a job once it meets my standards – and I have very high standards, being OCD to a degree.

Although I love it, sleep is for the weak – I sleep four hours a night on average. There’s never enough time and if I’m doing something unproductive, it might be fun in the moment but I feel like I wasted that time and I can never get it back. That’s okay every so often, but I would rather put that time and energy into something more productive.

I have heard that the best learning environment isn’t one in which you’re given the answer, but one in which you’re given the environment to learn the answer.

Entrepreneurship is about getting a really good environment, but with no answers. That’s pretty much how I run my business: if it works, I’ll keep doing it and, if not, then I’ll have to adjust. There’s so much to learn about business and how it works, its impacts and potential, so it’s a fascinating field to study and be in.

I see entrepreneurship as the most fascinating and exciting career path. It’s limitless – financially, intellectually, and socially.

Q. How have people around you reacted to your success?

One of Emil's trucks, trailers and mowers.

A. When I was younger, even though they respected my work, my friends would say, “What are you doing this weekend? Still mowing those lawns, huh? Well, that stinks because we’re going to the pool this weekend and you should come…but you can’t.”

It eats at you after a while. But it turned around when I got older and could drive and I could choose, “Which one of my five trucks do I want to drive to school today?” Or when you actually had your own money to take girls out on dates – not allowance money mommy and daddy gave you.

For my family, I know that I have made them proud. My parents let me chart my own course with the business, as long as I was enjoying it. They weren’t going to step in and intervene. So I haven’t seen any special treatment, except when I need a little bit of financial help. Since they are both entrepreneurs, they know what it takes to run a business and they aren’t going to sugarcoat it. They aren’t going to feel sorry for me when I have to work long hours.

Q. Anything else you would like to add?

A. I didn’t think of what I did as being an entrepreneur until I won some awards and that funny word happened to be in the title. I think kids need to not be afraid of the word ‘entrepreneur’. It took me a while just to learn how to spell it.

What I’ve done isn’t hard. Anyone can do it. I’m not a genius, nor do I come from a wealthy background. I’ve built my business from the ground up and today it’s my baby, a child I am hoping to raise to serve as my retirement account when I get older – much like my mom’s plan for me [laughs].

This is an abridged version from Emil’s interview in our latest project, 50 Interviews: Young Entrepreneurs. Emil is one of the most fascinating people I have ever met. Despite what he says, he works sickeningly hard and has incredible advice for young entrepreneurs.

Emil Motycka’s Top Quotes

“Start today, not tomorrow. If anything, you should have started yesterday. The earlier you start, the more time you have to mess up.”

“The biggest failure you can have in life is not trying at all.”

Want even more inspiration?

Don’t miss 38 more inspirational quotes from crazy-young kids like Emil:
40 Entrepreneurship Quotes You’ve Never Heard >>

Saturday, July 11th at midnight I embarked upon a journey to climb four 14’ers in one day. For those non-Coloradoans, a 14’er is a mountain that is 14,000+ feet above sea level. There are over 50 14’ers in Colorado and I plan on climbing each one. In my most recent expedition, I realized climbing mountains is similar to running businesses.

I’ve listed four obvious and four not-so-obvious similarities between entrepreneurship and climbing mountains.

Obvious Similarities Between Business and Mountain Climbing

A view from Mt. Cameron. Colorado Tourism should pay me for sharing this picture.

1. It takes a lot of effort to get to the top.

Mountains have long been used (and over-used) as a metaphor for challenging tasks. But sometimes expressions become cliché because they are just so perfectly suited to describe a situation. That’s the case here.

When I was climbing Mt. Democrat, there were times when I couldn’t see the summit through the snow glaciers and rock formations in front of me. But I knew that if I kept putting one foot in front of the other – strenuous though it may be – I would eventually reach the top.

2. You’ll often encounter and overcome obstacles.

On Mt. Bross, there was a patch of boulders and a steep incline right before the summit. The gravelly rocks made that part of the climb slow going, but when I finally got through that portion, there was a stretch of flat trail to the summit.

Businesses can work similarly. Sometimes, when you persevere through a few challenging months (or years) of hard work with little to show for it, your entrepreneurial venture will suddenly take off. But you’ll never know if there is a flat stretch of trail at the end of the boulders unless you work through them to begin with.

3. You have to pace yourself and take breaks.

Along your way to the top of a mountain, it’s important to pace yourself and take breaks to catch your breath (especially important at high altitudes). When you’re building a business, or even performing an arduous task, it’s important to take breaks. If you don’t take breaks to reflect on your work, you might veer off task and have to duplicate your effort.

4. When you get to the summit, you feel accomplished.

Summiting a mountain is the culmination of hours of hard work. It feels awesome! When your business experience is a success, you’ll experience a similarly awesome feeling.

Less Obvious Similarities Between Business and Mountain Climbing

The summit of Mt. Lincoln from Mt. Cameron.

5. It’s more beneficial when you share the experience with other people.

Though many people enjoy mountain climbing as a solitary experience of self-reflection, it can also be a social event. You gather a few people you don’t mind talking to for hours on end, and climb a mountain with them.

When you have a business, it’s important to share that experience with other people. More than likely, those people can push you through and pull you out of the hardships you’ll face. Also, it hardly matters when your business is successful if you’re the only one who gets to delight in that experience.

6. You get to meet cool people along the way.

Mountain climbers and entrepreneurs are motivated, talented, and often idiosyncratic people who have a passion for living a little bit on the wild side – living on the edge, you might say. They scoff at dangers both mortal and financial, and most have uniquely adventurous life stories to show for it.

Though you should get involved with entrepreneurship or mountain climbing because of your passion for them, don’t hesitate to make friends with the various people you’ll meet along the way. You never know when one of them might have some advice that could end up saving your business or – on the top of jagged peak – your life.

Between the four different mountains, I must have exchanged words with 30 or more people. Mountain climbers tend to be friendlier when they’re engaging in something they’re passionate about. The same can be said for entrepreneurs.

7. It’s easier to climb in certain seasons.

Mountain climbing is a seasonal sport. A few 14’ers are only climbable for one month out of the year. The rest of the time, they are covered in virtually impassable snow. Some businesses are the same way. For instance, in most places grass doesn’t grow year-round. Therefore, don’t expect your lawn service to be profitable when the grass is dormant.

8. When you climb one, you want to climb more.

Climbing mountains can become an addiction. One of the friends I was climbing with is planning on climbing eight 14’ers in the month of July. Trying to climb just one mountain is like trying to eat just one potato chip: with a little bit of self-control, you can restrain yourself – but who would want to?

Starting a business can be equally addicting. This is why the term ‘serial entrepreneur’ came about. Most entrepreneurs aren’t satisfied with one successful business.

Closing Remarks

Another important point to make is that by becoming an entrepreneur, you have the freedom to decide to do things you enjoy (i.e. climbing mountains) when you want to do them. If I had a traditional job or internship like most of my peers, it would’ve been challenging to join this expedition.

The crew atop Mt. Bross with Mt. Democrat in the background. I'm on the far right.

To summarize the hike, I climbed Mt. Democrat, Mt. Cameron, Mt. Lincoln and Mt. Bross. These four mountains are all within a few miles of each other, so climbing these four 14’ers really isn’t as impressive as it sounds. Regardless, the whole trip was about 7.25 miles long, eclipsed 3,700 vertical feet and lasted about 5.5 hours.

Overall, the experience was exhausting but worth it. I often feel the same about JuniorBiz.

If you like this article, you’ll like my other ones too. If this is the case, you should get JuniorBiz by email.

This is a guest post by Ben Foster, owner of TeenLawnCare.com.

Mowing lawns is a great business. Below I have outlined 5 reasons why you should start a lawn mowing business instead of, say, an eyelash clipping business.

1. Continuous service for just a few customers.

Businesses that sell products must find large numbers of customers that purchase only a few times. Lawn mowing businesses, however, have a set list of customers that purchase time and again. This means once you find your customers, you do not have to be constantly finding new ones.

Also, having only a few customers allow you to have a close relationship with them. There is a softer side to lawn businesses: Not only do you sweat in the sun, you also work with people.

2. High profits, low expenses.

Most businesses have a profit margin of about 20%, if they are lucky. Lawn business, however, usually have a profit margin of about 97%. Think about it. If you are the only one in your business, all you have to pay for is oil and gasoline for your mower, and sometimes new equipment. Even if you have a larger business, you still only have to pay for employees, trucks, and maybe a secretary, but then you aren’t doing the manual labor. With a lawn business, you are are going to have high profits and low expenses.

3. You don’t need special skills.

When I first was thinking about starting a business, I made a list of what marketable skills I had. To be honest, I was pretty stumped. Some people tutor guitar, but I wasn’t good enough to teach someone. I’m not so good with computers, and I can’t fix bikes. Most teenagers are not good enough at something to market it to other people. Heck, we haven’t even gone to college yet!

However, anyone can learn to mow a lawn in half an hour. Of course, there are finer points to lawn mowing, but those come with time. You can make a lot of money simply because people don’t feel like doing it or don’t have time to.

4. There is work for every season.

At first thought, a person might believe that mowing lawns is only a spring and summer business. Well, it was, but then your customer asked you to rake leaves in the fall.

Then, in the winter, you thought you were going to have a fun snow day off of school. Nope, you have to make $300 dollars shoveling snow. As you can see, lawn care is not limited to a single season. You can make money all year.

5. You get to work outside

For a lot of people (haha, even for people staring at a computer screen right now like you) working outside is appealing. Everyone will think your farmer’s tan is manly. Plus, mowing lawns will help keep you in shape, if coupled with a healthy diet. Mowing lawns is plain good exercise.

Conclusion

I personally believe that mowing lawns is a fabulous way for a teenager to make money. You can make a lot of cash, and have a lot of fun running the business.

This post was contributed by Ben Foster. Ben is a young entrepreneur who has his own teen lawn mowing business as well as a teen lawn mowing blog. Ben has also graciously written a review of the Official JuniorBiz Lawn Mowing Guide. He is a very nice person. Thanks for everything, Ben!

Want to make big money mowing lawns?

Find out how a Colorado kid made $135K in one summer mowing lawns:
Emil Motycka Interview: From ‘Mow Boy’ to $135K >>

Photo by: super-structure

Here you will find a list of safety tips relating to lawn mower use, gasoline, electrical equipment, advertising and general safety precautions.

Lawn Mower Safety

1. Always make sure you have read the operating guide for your lawn mower. The better you understand how to use your lawn mower, the safer you will be.
2. Never run over anything other than grass with your mower. If there is something in the lawn that cannot be removed, such as sprinkler heads or drainage caps then make sure the blade will go over it while the engine is off first. If the blade can’t, then mow around the object.
3. Always use care on inclines. Push walk-behind mowers across slopes and drive riding mowers up and down slopes. If you think a slope is too steep, then don’t mow it without asking your customer.
4. Never let grass or other debris accumulate on top of your mower, especially if it’s dry. If the mower gets too hot, the grass could ignite and start a fire.
5. Never run your lawn mower if you notice that it is leaking. That leak is most likely gas or oil. In either case, it can be harmful not only to you, but the grass you are mowing as well.
6. If you are using a riding mower, never let anyone else ride on the mower with you. They could fall off then you might run them over and cause serious injury/amputation.
7. Never run your lawn mower while you’re on pavement. On the pavement, objects are much more likely to be thrown at very high speeds.
8. Always stay clear of a hot engine after mowing a lawn. Mufflers can reach up to 1200˚ F which is plenty hot enough to burn you.
9. Always make sure your mower is in good working condition. The lawn mower is safest when everything runs properly.
10. Never continue to run your lawn mower if it starts smoking. Smoke from your lawn mower means something is way too hot or on fire.
11. Always keep all four wheels on the ground. Tilting the mower could cause something to unexpectedly fly out from underneath.
12. Never leave a running mower unattended. You never know who or what can get caught up in your mower while you are not there.
13. Always disconnect the spark plug when you work on your mower. This will prevent the engine from accidentally starting.
14. Never leave your gas-powered lawn mower running in an enclosed area. This will cause that area to fill up with toxins that are harmful to breathe.
15. Never empty the grass-catching bag while the engine is running. Not only will the grass fly everywhere and make a mess, a rotating blade increases the chances of cutting off fingers.
16. Always set the wheel height of your mower prior to starting the engine. Making adjustments to your mower should always be done while the blade can’t slice anything off.
17. Always shut off the engine before unclogging the discharge shoot. This is a good way to prevent cutting off your fingers.
18. Never use your mower for something it is not designed to do. For example, don’t use your mower as a form of transportation.
19. Never modify your lawn mower to make the engine more powerful or blade rotate faster. It won’t cut the lawn any better and will only make your lawn mower more dangerous.
20. Never remove a safety feature from your mower. They are there for a reason.

Gasoline Safety

1. Never store gasoline in the house. Gasoline puts off toxic fumes that are harmful to breathe in.
2. Always store your gasoline in a container that is clearly marked G-A-S. This way other people will know what is in there too and they can take their own precautions.
3. Always handle fuel with care by not overfilling the gas tank and wiping up any spills.
4. Never remove the gas cap or add fuel while the engine is running. You should always turn off the engine and let it cool down before refueling.
5. Never fill the tank on a mower that has been operating and is hot. The gasoline can be ignited by a hot muffler.

Electrical Equipment Safety

1. Never use your electrical power equipment in wet conditions. Wet conditions can cause electrocution.
2. Always make sure the power switch is in the OFF position before plugging the device into the outlet.
3. Always unplug the cord directly from the outlet. Unplugging the cord by yanking on it could damage the cord or worse, someone who is nearby.
4. Always make sure your electric cords aren’t damaged or frayed. When wire is exposed, it increases your chances of being electrocuted.
5. Always make sure you know where your cords are so you don’t trip over them.

Clothing Safety

1. Never wear sandals while mowing lawns. Open-toed shoes cannot protect your foot if it slips into the blade or from other flying objects that the lawn mower might throw.
2. Never wear baggy clothing while mowing lawns. Loose clothing can get caught up in the lawn mower controls and other moving parts.
3. It is generally a good idea to wear long pants while mowing lawns. Long pants will protect your legs from debris that is thrown from the lawn mower.
4. Always wear eye protection while mowing and trimming. It is a lot easier to have a lawn mowing business when you have two eyes.
5. Always wear shoes that have good traction while mowing lawns. Slipping and falling might cause you to lose control of your mower which could result in it running over something it is not supposed to.

Advertising Safety

1. Never go door-to-door advertising to an unfamiliar house or neighborhood. If you go door-to-door you should at least tell someone else exactly where you are going and how long you plan to be out.
2. Check out the website, www.familywatchdog.us, to see if there are any criminal offenders in your neighborhood. If there are, it is best to avoid their house.
3. Do not put too much personal information on your advertising. All the personal information you really need on your advertisements are your business name, your name, and one or two ways that they can contact you.
4. While going door-to-door, if someone tells you to come in to their home, DON’T unless both you and your parents know them personally. You can say that you are busy and do not have time to come in.
5. Always trust your gut instincts. If you are approaching a house or talking to a potential customer and you get a funny feeling about it, leave. You can say that you are getting a phone call that you have to take if you feel awkward just leaving a house.

General Safety

1. Always make sure someone knows where you are mowing, whether it’s your parents, the customer, or a friend. If you get injured and can’t move or tell anyone, they will know where to find you.
2. Always check your lawn before you mow. Items such as sticks, rocks, toys, wire, and other objects can shatter and be thrown if they are run over by the lawn mower.
3. Always look for holes in the lawn so you do not step in them and twist your ankle.
4. Always make sure children and pets are not in the lawn while you are mowing. They usually do not understand the dangers associated with lawn mowers.
5. Never mow the lawn when it is dark outside. You need to be able to see where you are mowing so you don’t run over anything.
6. Always wear sunscreen while mowing lawns. Sun is more damaging to your skin than you think.
7. Always drink plenty of water before, during and after mowing lawns. Lawn mowing is a physically demanding activity and your body will not function properly without plenty of water.
8. Never mow wet grass. Wet grass is slippery. You could fall and slip under the mower.
9. Never mow a lawn while it is lightning or thundering. If you can see lightning or hear thunder while you are in the middle of mowing a lawn, abandon your mower and get inside.
10. Your safety should always be your first priority while mowing lawns. If for any reason at all, you feel unsafe, just go home. Then call your customer and let them know what happened. They will understand.

Want to make big money mowing lawns?

Find out how a Colorado kid made $135K in one summer mowing lawns:
Emil Motycka Interview: From ‘Mow Boy’ to $135K >>

Photo by: DaDaAce