I have three important rules I try to never break:

  1.  Buy popcorn from every Cub Scout that asks.
  2.  Buy cookies from every Girl Scout that asks (but I try not to eat them).
  3.  And always stop by every Lemonade Stand to buy some.

lemonadeI think supporting young entrepreneurs is an absolute must. Actually, I think supporting any entrepreneur is important, but when it comes to kids and their “lemonade stands”, my support is inevitable. I grew up on a farm in Pennsylvania and in the summer we would set up a stand and sell sweet corn and tomatoes, pumpkins at Halloween, and firewood in the winter. I love the guy who sells $1 bottled cold water on a hot day, and when it starts to rain, he adds umbrellas to the mix.

From my perspective, entrepreneurship is the entire backbone of our country. How cool is that? Forbes’ list of the 400 richest people in America includes mostly entrepreneurs. Gates, Bezos, and Zuckerberg – all classic entrepreneurs. Visit a farmers market on any given weekend and you will find exceptional entrepreneurs.

Truth be told, I had not seen a good old-fashioned lemonade stand in a long time until a few weeks ago. One day, I stopped by my house during lunch and two young brothers were operating a lemonade stand on our street. Later, when I ran into their parents, complimenting their sons’ entrepreneurial spirit, I heard the typical comments most CPAs do. Do they have to pay tax on their lemonade earnings? Do you have any advice if they want to make it big?

Ask a CPA, “Do you have any advice?” and be prepared to listen for a while.

Do they have to pay tax on that? Believe it or not, yes they do. If either lemonade-seller makes over $433 individually, they would owe their first self-employment tax. $435 in self-employment earnings results in $61 in tax due, whether you are 5 years old or 95 years old.

But don’t worry, I do have some tax and financial planning ideas for lemonade-stand operators and entrepreneurs alike to consider:

  • Make sure they properly account for and, therefore, deduct all their expenses. This, of course, includes the cost of the actual raw materials (lemonade mix and cups). I am assuming Mom gave them the ice.
  • They can reimburse Mom for standard mileage rates 53.5 cents per mile for taking them to the grocery store. They get a full deduction and Mom does not have income to report.
  • If they have self-employment earnings income, they should consider a Roth IRA. $500 deposited into a ROTH IRA at age 10 that averages 6% will grow tax-free to about $5,500 by age 60.
  • By the way, they better get an NC sales tax number and start collecting and remitting sales tax. I joked (but it is also actually true).

Tax and financial planning for the kids is a lot of fun, but how do we encourage their continued entrepreneurial spirit in the long run?

The next question they asked was, “What advice do you have if they want to make it big?” After a few short hours, I bet they wished they had not asked that question. In summary, here are my Top 10 bits of advice, in no particular order:

 

  1.  Recruit and retain great employees in your organization. Invest in your people.
  2.  Set up early and contribute as much as practical to a qualified retirement plan.
  3.  It’s never too early and extremely important to have a Succession Plan in place.
  4.  It is always important to keep your personal financial planning and estate plan current.
  5.  Embrace change and stay cutting edge in all areas of your organization.
  6.  Invest heavily in technology. It is expensive to do, but in the long run, more expensive not to.
  7.  Let us refer you to a good corporate attorney to be on your team of advisors.
  8.  Stay entrepreneurial. Take calculated risks and accept occasional failures.
  9.  Set stretch goals and update them often. Challenge everyone, but lead by example.
  10.  As a CEO, keep a high tolerance for bad news as you can only fix the issues of which you are aware.
Michael Gillis, CPA/PFS
Michael Gillis, CPA/PFS

Mike Gillis, CPA/PFS is the managing partner of DMJ & Co., PLLC. Mike has more than 30 years of experience in public accounting and was named managing partner in 1997. He is a frequent presenter on tax matters, advises privately-held businesses and their owners, and works extensively in the area of succession and exit planning strategies for businesses.

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