Would a business owner who makes no more than $10,000 a year have to file federal tax returns?

by Loretta M. Tubiello-Harr, CPA | Jun 21, 2018

If I start a small business as a freelancing contractor, and I accept credit/debit as a form of payment, the IRS will obviously trace that back to me (I’m guessing it would be a Schedule C 1099-MISC). Would I have to pay penalties, tax fees, etc., if I made no more than $10,000 a year from this business and didn’t file? Or would filing be an advantage due to tax benefits from being a business owner (I would have tax breaks, refunds, and deductions, etc.)? 

Assuming you are single with no dependents and all you have is $10,000 in business profits with no other income, and you do receive 1099-MISCs, then yes: the IRS will match the income against the filing, and you will most likely receive a letter with a balance due, along with penalties and interest. The amount due would not be for income tax, as you are correct in that there would be no income taxes based on the available deductions. You would, however, be subject to self-employment tax. Self-employment tax is due for any net profits that exceed $400. Therefore, it is in your best interest to file a return and claim the allowable deductions against your business income to reduce the amount due for self-employment tax purposes. Tax breaks or refunds from being a business owner would most likely be nonexistent at the income level you are stating.

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Answered by: Loretta M. Tubiello-Harr, CPA, is a principal with Tubiello-Harr & Associates LLC in Coopersburg, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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