By: Anne Dewvall
Cottage industries have existed for thousands of years.
Ordinary people sell goods and services on a small scale to supplement their
income. Once this may have looked like selling eggs, mending fences, or sewing
quilts. It doesn’t look all that different today.
But, a person selling goods and services is operating a
business. Increasingly, local entrepreneurs are evading taxes and hiding from
laws by operating small businesses off the books. Facebook, Craigslist, and
other online haunts have become marketplaces, not just for legitimate businesses,
but for people hawking homemade scarves, orders of cupcakes, or cleaning
This kind of homespun entrepreneurship doesn't intend to
grow large and it tends to wax and wane with the seasons or with a person’s
free time. It may never threaten the big chain stores or bring in significant
revenue. It may be easy for the operator to downplay their actions, but they
are still running a business, however small. In America, that means that the
business owner has a number of responsibilities – to their customers and their
Anyone who is selling anything is likely subject to pay
taxes on that income and also may need specific licenses or registrations.
There are rare exceptions, of course, and this is not intended to be an
all-inclusive primer on running a small business. For example, most people
operating cottage industries will likely be filing taxes as a sole proprietor.
This means they have an income tax liability and may also need to pay a
self-employment tax. Individuals who have earned more than $400 net income in a
tax year from “self-employment” must also pay self-employment tax.
This applies even if a person has a full-time job. The
income they earn from a side business, a hobby, craft shows, farmers' markets, or
any other venture is self-employment income.
Businesses are also subject to other regulations, most of
which ensure the customer’s safety and protect the business. For example, most
food sold for a profit must be prepared in a commercial kitchen. Hint: your
home kitchen is probably not a commercial kitchen. Yet, today alone, I scrolled
through a Facebook group to see multiple individuals selling food out of their
homes. It’s probably delicious. It’s also illegal.
There are many legitimate ways to operate a small business
out of your home and a lot of the multi-level marketing companies like Mary Kay
and Avon provide extensive resources to help ensure representatives are paying
taxes and following local, state, and national laws.
But, when individuals go outside the system, it hurts
everyone. It hurts customers, it could hurt the business, it hurts the economy,
and it hurts small businesses that are playing by the rules.
In Kansas, the state legislature established an organization
called NetWork Kansas to serve as a clearinghouse for all information related
to starting or growing a business – at any level. From the tutu sewing business
being run out of a basement to a multi-national corporation, there are
resources in Kansas that can help. If you’ve ever wondered if you need a
license or how to file taxes as a business, there are real people who can help
answer your questions and direct you to additional resources to help make your
business even more successful. Call NetWork Kansas toll-free 877-521-8600 or
This blog was
originally published as an editorial in the Derby Informer.
Image source: www.alreadypretty.com
Content contributed by Anne Dewvall, Network Kansas. Network Kansas is a proud affiliate of U.S. SourceLink, America’s largest resource network for entrepreneurs