How To Handle Taxes from Scrap Metal Profits

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 do we 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 are under the age of 65
    • $26,100 if one spouse is under age 65 and one age 65 or older
    • $27,400 if both spouses are 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, 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 business as a sole proprietor or an independent contractor, a member of a partnership that carries on a trade or business, or are in business for themselves (part-time or full-time).

To file your self-employment taxes, you must know your tax rate; to do that, you must know if you’ve had a net loss or profit. Take your income from the year (an excellent reason to keep your metal receipts or notes 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.

Form 1040-ES – Estimated Tax for Individuals  

You Can’t Avoid Paying Taxes, But You Can Lower Them

You can make your taxes much lower with one simple thing: Write-offs. Anything and everything you spend money on when it relates to your scrapping business should be written off. Here are some common examples:

  • Start-up costs – i.e., legal fees, marketing costs, etc.
  • Vehicle expenses – You can deduct up to $25,000 and the mileage deduction for travel and vehicle expenses.
  • Home office deductions – if you rent a space for storage or tooling, or even the mortgage on your home, you can deduct your dedicated workspace. Measure the square footage to determine.
  • Supplies and Equipment – Any equipment used for your job, including 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 handled their taxes, and of course, that ruffled some feathers. But hey, we’re here to bring up uncomfortable conversations, even if that means upsetting some people, to help those who want 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 plenty of people 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 answer. Remember always to do your 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