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If you’ve started your own business, do freelance gigs, or make money on platforms like Etsy, Depop, or YouTube, congrats, you’re officially self-employed. That’s awesome. You’ve taken the leap most people don’t until much later. But there’s one thing that’s different when you’re self-employed: taxes.
Unlike a regular part-time job where taxes are automatically taken out of your paycheck, being self-employed means it’s up to you to plan ahead. No employer is doing it for you, so if you don’t save for taxes as you go, you could end up with a surprise bill later. Here’s how to stay one step ahead.
First, know what counts as self-employment. If you get paid directly by people or businesses and don’t receive a W-2 form at the end of the year, you’re most likely self-employed. Whether you’re mowing lawns, editing videos, baking custom cakes, or reselling sneakers online, the money you earn is taxable income. Once you earn $400 or more in a year from self-employment, the IRS expects you to report it and pay taxes on it.
The key difference is that self-employed people pay something called self-employment tax. This covers Social Security and Medicare, the same stuff employers usually split with their workers. Since you’re both the boss and the worker, you pay the full amount. That’s about 15.3% on top of any regular income taxes you might owe.
So what should you do? The best move is to set aside around 20 to 30% of everything you earn for taxes. If you make $100 from a gig, try to move $25 of it into a separate savings account for tax time. That way, you’re not scrambling later. Some teens even use budgeting apps or spreadsheets to track what they earn and calculate what to set aside.
It’s also smart to keep records. Save receipts, invoices, mileage logs, anything related to your business. Why? Because when tax season rolls around, some of your expenses may be deductible. That means you only pay taxes on your profit, not your total earnings. Let’s say you spent $100 on materials and made $300 in sales. You’d only be taxed on the $200 profit. That’s a big difference.
And yes, even teens can file taxes for self-employment. It might feel intimidating at first, but tax software can guide you through it step-by-step. You can also ask a parent or tax pro to help the first time so you get the hang of it.
Planning for taxes when you’re self-employed isn’t about being perfect. It’s about building smart habits now that will make your life way easier later. By setting aside money, tracking your income, and staying organized, you’ll avoid stress, stay out of trouble, and actually understand how your business works.
More soon,
Gavin @ Alpha Kids Finance Team
