Right off the bat, we want to preface this conversation by saying we are NOT tax professionals, lawyers, etc. The purpose of this article is to provide context to a question that we see asked over and over again by scrappers: how to do I handle taxes from scrap metal profits?
Who Needs To Pay Taxes?
It’s important to remember that the minimum income amount does depend on your filing status and age.
Minimum Income to File Federal Tax Return (as of 2021)
- Single filing status:
- $12,400 if under 65
- $14,050 if age 65 or older
- Married filing jointly:
- $24,800 if both spouses under age 65
- $26,100 if one spouse under age 65 and one age 65 or older
- $27,400 if both spouses age 65 or older
- Married filing separately – $5 for all ages
- Head of household:
- $18,650 if under age 65
- $20,600 if age 65 or older
- Qualifying widow(er) with dependent child:
- $24,800 if under age 65
- $26,100 if age 65 or older
These qualifications do not include filing for other reasons, such as if you’re self-employed (which we assume most full-time scrappers are).
What About Self-Employment Tax?
When you don’t have an employer, you are fully responsible for paying the Medicare and Social Security Tax, in this case, known as the Self Employment Tax. It is the full 15.3%, split so 12.4% goes toward Social Security and 2.9% goes towards Medicare.
As a self-employed individual, you are still required to file annual taxes. Self-employed is defined as those who carry on a trade or businesses as a sole proprietor or an independent contractor, a member of a partnership that carries on a trade or business, or you are in business for yourself (part-time or full-time).
To file your self-employment taxes, you must know your tax rate, and to do that, you must know if you’ve had a net loss or net profit. Take your income from the year (a good reason to keep your metal receipts or note in an Excel sheet) and subtract your expenses (anything related to your scrap business). If your earnings from self-employment exceed $400, you must file a Schedule C Form 1040. Even if you did not exceed $400 in earnings, you still need to file a return to meet the requirements of the 1040 form.
The IRS has those who expect to owe more than $1,000 in self-employment tax to make estimated tax payments four times during the year. The 1040 form will also be necessary for these quarterly payments.
Ways to Save on Taxes
Write-offs. Write-offs. Write-offs. ANYTHING and EVERYTHING you spend money on when it relates to your scrapping business should be written off.
- Start-up costs – i.e., legal fees, marketing costs, etc.
- Vehicle expenses – You can deduct up to $25,000 in vehicle expenses in addition to the mileage deduction for travel expenses.
- Home office deductions – if you rent a space or even your mortgage, you can deduct your dedicated workspace. Measure the square footage to determine.
- Supplies and Equipment – Any equipment used for your job; that includes that new wire stripper you bought or even safety items like gloves and glasses.
- Health Insurance Premiums – you may be eligible to deduct healthcare costs for yourself and your family.
Related Read: Self Employed Tax Guide
Tax Advice Straight From Scrappers
We asked our fellow scrappers in our Scrap Metal Recycling Talk Facebook group how they handle their taxes, and of course, that ruffled some feathers. But hey, we’re here to bring up the uncomfortable conversations, even if that means making some people upset to help those who want the advice. Even with this pushback, we received some very sound feedback.
Take what a group member does here as an example:
Or you could do something as simple as this, and it will make all the difference come tax season:
Or take this approach:
We are not professionals in this subject, but there are plenty of people who are. Talking to accountants and tax professionals may be beneficial if you struggle with doing your taxes every year or have more in-depth questions that we cannot give you answers to. Remember always to do your own research, too, because these scenarios really depend on several factors, from where you live and your state’s tax laws to your filing status, and of course, how much income you make.
Find Your State’s Tax Resource