[dcchambers]

Does anyone let the tax implications of launching (several) tiny projects prevent them from even starting?

I know LLCs allow for pass-through taxation and you don't have to file as a business, but I get frozen by the idea that generating a few hundred dollars in revenue from some silly side project means I have to spend hours/days of my time the next Spring figuring out how to properly pay taxes on it.

[maxverse]

A past manager once gave me great advice for situations like these when I was thinking about applying to grad school worrying about my then-job if I got in: "deal with this problem if you get in." The chances of you making a few hundred dollars in revenue by next Spring are statistically very low. And if you are persistent and talented and lucky enough to generate hundreds of dollars in revenue, you're certainly capable of paying taxes on your earnings.

The fact that you're asking this question means you're interested in launching things. If so, the cliched, true advice is: launch.

If you want practical advice: I run a one-person LLC in the US. Taxes on a few hundred dollars are nothing to worry about.

For inevitable naysayers: my manager's advice doesn't mean you shouldn't ever plan or prepare. Just that when your chances of success are very low, don't worry too much about the repercussions of success. I applied to grad school, and didn't get in. My career continued on just fine.

[zrail]

(assuming you're in the US) if you've never had a business before, a couple hundred dollars of extra income is not material to your taxes and I wouldn't worry about it at all.

Once you get to the scale of a few thousand dollars a year, you can file what's called a Form 1040 Schedule C which allows you to declare your business income, claim expenses and other deductions, and include it in your taxable income. For that scale it's an extra 10 minutes with your tax software or even by hand, as long as you keep good records, and you're done.

The point at which an LLC or other more formal business structure makes sense is fuzzy and can have different ranges depending on the business, but typically you probably don't need or want to invoke the expense of a CPA until you're making more than six figures (or if you've taken outside investment, obv).

[LocalPCGuy]

The part about "just don't worry about it" is not really great advice, IMO. I think the rest is good, particularly the part about using tax software and/or doing a Schedule C. Just do what it says - it's pretty simple for small businesses - the amount in taxes paid will be fairly minimal. If you use tax software, use the business version and answer the questions and it'll figure it all out for you basically (might even find some deductions if you had expenses, like domain names, hosting, etc.).

While the IRS likely won't audit you for a few hundred dollars (US), there are laws about what you have to do. You don't need to become a tax expert, but knowing the very basics so you don't run afoul of any laws and end up owing some $$ or penalties is probably worth taking a bit of time to do at the end of the year.

[zrail]

That's fair, and I'm definitely not advocating tax fraud or anything of the sort. There's a $400 minimum for filing Schedule SE but no minimum for Schedule C. That said, it's _exceedingly_ unlikely (basically impossible, afaict) that the IRS will audit for Schedule C if you've never filed one and you don't exceed the filing requirements for 1099-NEC or 1099-K. The maximum tax in that case is measured in dozens of dollars.

[vmception]

Thats a dumb reason to get frozen. Just in case you needed that perspective.

All your costs are tax deductions, whether you incorporate or not. The incorporation cost is negligible and you can ignore everything about a local/foreign llc registration simply because the consequences are improbable and inconsequential, just make the llc in the best states. If your employer is withholding any taxes, you’ll get so much more of it back because you have so many deductions now.

If you make any revenue its easy to count.

Your standing in society is based on gross revenue, your tax footprint is a fraction of net revenues. Its low key perfect. Net operating losses are the greatest of all time.

In addition, You get massively disproportionate security and anonymity by operating under entities you created. And you can prove product market fit in private and then inherit all the credit for it when it works.

[mapmap]

What are the best states for an LLC?

[bjord]

I believe Delaware is one of the best tax-wise, but unless you're bringing in lots of revenue, the additional hassle of getting a (representative? agent? can't remember the term for the entity that allows you to set up in a different state) might not be worth the additional complication (in comparison to just setting up everything in your home state). As far as I know, that's something you can change later, anyway...I think the most important thing is not getting hung up on the technicalities and just going ahead and getting started.

[vmception]

Wyoming, followed by Delaware, but save Delaware for the C-Corp when you need formalities from outside capital.

Both offer levels of privacy, Wyoming’s aren't codified they just dont care (and will help you), there all you have to do is just have anyone else sign the organization documents. Your registered agent or your lawyer can.

[strbean]

Maybe you should start a tiny project called TinyTaxes to handle simple tax filing for such unprofitable tiny projects!

[moffkalast]

And then TurboTax sues you into the ground.

[chrisa]

You can launch multiple tiny projects under a single LLC, then just pay taxes on the total income from all of them for the year - you wouldn't have to do any separate filing

[vmception]

Everyone that is saying just "put the earnings on Schedule C or Schedule 1 of your tax form" is overlooking the part about your side project getting you sued and you having much more to worry about than just taxes.

The LLC (and other entity types) increases the deterrent of this ever affecting you.

The LLC specifically has some theoretical weaknesses, but the reason it is a deterrent is because it deters people from spending more money to find out about those weakenesses, and it also increases the odds that people won't be able to know where you are or serve you properly. The more expensive it is to find out anything, the less potential aggrieved people will bother, and "finding out" for them could mean "even harder to create liability and a payout", so they get bounced, or deterred, from trying.

[petercooper]

I know HN leans heavily US, but if anyone is in the UK, you can now earn up to £1000 in side income without having to declare it or file a self assessment tax return.

[BurningPenguin]

Damn, that's nice. In Germany it's enough to have the intention to make money outside of regular employment. You won't pay taxes until a certain amount is reached, but you'll have to get a business license and fill out tax forms every year. And if you don't register yourself as "Kleingewerbe" (small business below 22k €), then you'll have to do sales tax too.

There are lawyers and some very shady businesses, that sweep through the web and report anyone who doesn't comply to any kind of law. They actually make money with this. When i had a small business, i've got a cease-and-desist letter from a lawyer of a "competitor" because a single link in my imprint page wasn't clickable. I guess that's why so many people are afraid of starting a business...

[OJFord]

'Now'?

But yes, I was thinking of that ('entrepreneur's relief' I believe) too - it solves this problem nicely: don't worry about it until you know you're making money.

(And also other problems like 'hang on I sold some old crap on eBay.. was that income')

[petercooper]

Ha! I'm old enough that 2017, when the "trading allowance" was introduced, feels like a year or two ago.. :-|

(Entrepreneurs' Relief was a thing that let you get reduced capital gains of 10% on up to £10m of proceeds from selling certain types of shareholdings or assets of a personal business. It's now called Business Asset Disposal Relief and has been decimated to just £1m.)

[OJFord]

Oh, I wasn't trying to call 2017 distant - I thought it was much older than that and just had a name change or something.

[krick]

It is a bit less of a problem for me lately, because I now feel somewhat more confident about many things in life. But for the most of my life, absolutely. It isn't like there is any real problem, but it was fear of the unknown for me. I was confident about how to make things, solve technical problems and such, and absolutely clueless about anything else. I was somewhat envious of how everyone files taxes on his own in USA. I just knew that my employer pays taxes for me, that I would have to if I want to start a business, and that I can get in jail if I fuck up. It isn't just about taxes, really, just anything law-related. But I had absolutely no idea what I actually have to do, or how do I even find out. I know it sounds silly, but it wasn't funny to me, it was infuriating helplessness.

Then I became older and just started caring less about doing things "the right way". It was liberating.

[Kon-Peki]

A few hundred dollars?

Put it on Schedule 1 line 8z and work on making it a few thousand dollars for next time!

https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

[grog454]

I used to fear this, until I read posts on a similar site about how frequently founders botch this and how understanding the IRS is with these situations. Obviously this only applies to the US. When I saw my first success, I paid a CPA ~$1000 (for hundreds of thousands in revenue) to help sort out the first year of taxes (before they were due) and it wasn't a problem.

To summarize someone else's better point: worry about this problem when you have it. In the mean time worry about problems you have right now.

[frollo]

That's me. Note that I'm not a US citizen (in fact, I never set foot on US soil, nor I intend to, in my whole life), so your mileage may vary.

In the end, I decided to launch all my side-projects for free (sometimes I outright include a "non commercial" clause because I don't see why somebody should profit off my free work). I find this reduces all the project related stress to a fraction.

[jhassell]

As a side hustler, even with pass-through taxation, you will still have to pay the self-employment tax (15.3% of net earnings) on top of taxes at your federal and state tax bracket. However, side-hustle money spent on qualified business expenses, is not taxable. (Tax people please chime in.)

[zrail]

Also, Social Security tax has a cap. If your day job + side project net income exceeds the cap, the excess will only incur Medicare tax.