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Teen Entrepreneurship: The Practical First Steps Parents Can Actually Help With
How teens can legally start a business — from business structures and bank accounts to taxes on $400+ self-employment income — with specific platforms and steps.
A 14-year-old in Sacramento last year made $34,000 selling hand-poured candles on Etsy. That’s a real number, reported in local news coverage, and her parents helped her set it up. What the coverage skipped entirely: how they structured it, what happened to taxes on that income, and what would have happened if a buyer had complained about a product injury. The “teen makes money on Etsy” story is everywhere. The operational reality — the part a parent actually needs to understand before handing over a Square reader — rarely follows.
This article is about the practical mechanics, not the motivation speech.
Key Takeaways
- Minors cannot legally sign contracts in most U.S. states, which means a parent must be listed as the legal owner on most formal business structures
- A sole proprietorship under a parent’s name (with the teen operating it) is the lowest-friction starting point for most teen businesses
- Teens who earn more than $400 in net self-employment income in a tax year are required to file a Schedule SE with the IRS — this applies to minors
- Etsy requires users to be 18+, but allows accounts under parental supervision; Depop requires 18+ with no parental exception
- Business bank account options for minors are limited — most require a joint account with a parent co-signer
The Legal Structure Question — What’s Actually Available
This is where most “teen entrepreneurship” guides skip the hard part. In virtually all U.S. states, minors cannot enter into binding contracts. That means a 15-year-old cannot legally form an LLC, open a business bank account, or sign a vendor agreement in their own name. Any contract a minor signs is generally voidable — which means the minor can walk away, but the other party cannot.
The practical implication: any formal business structure requires a parent or guardian as the legal entity.
Sole proprietorship under a parent’s name: The simplest approach. A parent files a DBA (“doing business as”) for a business name (fee: typically $10-$50 at the county clerk’s office), opens a business bank account in their name, and the teen operates the business. Income flows to the parent’s tax return (or is gifted to the teen under IRS gift rules, subject to limits). The parent bears full personal legal liability.
Parent-owned LLC with teen as operator: More protective. A parent forms a single-member LLC (cost: $50-$500 depending on state, plus annual fees), lists themselves as the sole member, and designates the teen as an employee or contractor. This provides liability protection the sole proprietorship doesn’t, but requires more administrative work (operating agreement, separate business account, annual filings). In some states, a parent can list a minor child as a non-managing member of a multi-member LLC, though this varies by state and requires an attorney to confirm.
Teen as independent contractor: For simpler situations — mowing lawns, tutoring, selling on marketplaces — the teen can operate informally as a sole proprietor in their own name for practical purposes, understanding that the legal exposure of this approach is largely theoretical for low-revenue activity. The IRS taxes this income regardless of legal structure.
Business Structures for Teen-Operated Businesses
| Structure | Legal Owner | Setup Cost | Liability Protection | Best For | Complexity |
|---|---|---|---|---|---|
| Sole prop (parent name, DBA) | Parent | $10-$50 | None | Simple product/service businesses | Low |
| Parent-owned single-member LLC | Parent | $50-$500 + annual | Parent protected | Higher-risk products, inventory | Medium |
| Teen as informal sole prop | Teen (practically) | $0 | None | Services under $5K/year | Very low |
| S-Corp (future planning) | Parent/teen (18+) | $500+ | Yes | Higher revenue, growth-stage | High |
| Parent-teen partnership LLC | Both | $100-$600 | Both protected | Genuine collaboration | High |
State fees vary significantly. Consult a CPA or attorney for state-specific guidance.
Opening a Business Bank Account as a Minor
Banks require account holders to be at least 18 (sometimes 21) for most business accounts. For teen entrepreneurs, the practical options are:
Joint account with parent: The parent co-signs a business checking account; the teen operates it day-to-day. Most regional banks and credit unions will do this. Some fintech accounts (Greenlight Business, Step) are designed for minors and allow debit card access with parental oversight.
Dedicated personal account used for business: Not ideal from an accounting standpoint, but functional for very early-stage businesses. A dedicated savings account, used solely for business income and expenses, gives clean records without requiring formal business account status.
The core principle is separation of funds from day one. Mixing business income with personal spending creates bookkeeping nightmares at tax time — and the IRS takes a dim view of it during audits.
Basic Bookkeeping for Teens (Simple but Non-Negotiable)
The Kauffman Foundation’s research on early entrepreneurship consistently identifies financial record-keeping as one of the skills that separates durable teen businesses from ones that fizzle out after the first year. The threshold isn’t expertise — it’s consistency.
A functional system for a teen business involves three things:
- Every sale recorded: date, amount, item sold, platform/method
- Every expense recorded: cost of materials, shipping, platform fees, equipment
- Monthly reconciliation: does the bank account balance match the running total?
A spreadsheet works fine at the beginning. Wave Accounting and QuickBooks Self-Employed both have free or very low-cost tiers appropriate for teen businesses. The habit of recording a transaction the day it happens is worth more than any specific software.
Platform Age Requirements: Where Teens Can Legally Sell
| Platform | Minimum Age | Parental Account Option | Notes |
|---|---|---|---|
| Etsy | 18+ (13+ with parental supervision) | Yes — parent must own account | Teen can operate under parental account per Etsy’s minor policy |
| eBay | 18+ | No formal minor exception | Parent-owned account with teen operating is common practice |
| Depop | 18+ | No exception listed | Strictly adult accounts |
| Amazon (seller) | 18+ | No minor exception | Parent owns the seller account |
| Facebook Marketplace | 18+ | No formal exception | Parent-owned account |
| Redbubble | 18+ | No minor exception | Upload-and-sell model; parent account required |
| Shopify | 18+ | Parent can operate for minor | Parent owns the store, teen operates it |
| Local/cash sales | None | N/A | Farmers markets, craft fairs, neighborhood services |
Platform policies change; verify current terms before setting up any account.
Taxes on Teen Self-Employment Income
This is the part most families don’t find out about until they get a letter from the IRS.
The IRS does not exempt minors from self-employment tax. If a teen (or anyone) earns more than $400 in net self-employment income in a tax year, they are required to:
- File a federal income tax return
- Attach Schedule C (profit or loss from business)
- Attach Schedule SE (self-employment tax)
The self-employment tax rate is 15.3% on net earnings (12.4% for Social Security, 2.9% for Medicare). This applies on top of any income tax owed.
A practical example: A 16-year-old earns $3,500 from selling handmade jewelry over the year, with $800 in material costs. Net self-employment income: $2,700. Self-employment tax: approximately $414. They may also owe income tax depending on their total income and filing status.
If the business is formally operated under a parent’s name and all income flows to the parent’s tax return, the tax situation changes — but the income doesn’t disappear from the IRS’s view. A CPA experienced with small businesses can structure this correctly; the cost of a single consultation (typically $150-$300) is worth it once a teen’s annual revenue exceeds $2,000.
What to Watch For Over 3 Months
Month 1: Has a real system been set up — separate account or earmarked funds, a tracking spreadsheet or app, and a clear understanding of where sales will happen? A teen who can explain their cost structure (what they spend per unit and what they charge) is on the right path.
Month 2: Is bookkeeping actually happening weekly, or is it already falling behind? The most common failure point in teen businesses isn’t sales — it’s that tax records become impossible to reconstruct. Check in on this specifically.
Month 3: At quarterly-ish intervals, calculate whether the business is profitable. Not “did we make money” but “did we make money after all expenses, including our own time?” Many teen businesses are profitable on paper but unprofitable when time is valued. That’s not a failure — it’s an education. The lesson of “I could earn more per hour at a part-time job” is worth learning early.
Red flag: a teen who resists keeping records because “it’s just for fun.” Fun businesses that earn real money have real tax obligations.
Frequently Asked Questions
Can a 15-year-old legally start a business?
Yes, with caveats. Minors can operate businesses informally, but cannot sign contracts, open business bank accounts, or form LLCs in their own names in most U.S. states. Practically, a parent needs to own the legal structure while the teen operates it. For low-revenue activity — under a few thousand dollars a year — informal operation as a sole proprietor is functional and common.
Does my teen have to pay taxes on Etsy or eBay income?
Yes, if net self-employment income exceeds $400 in a tax year. Platforms with annual payments over $600 now issue 1099-K forms under IRS rules. The IRS receives a copy. The income is taxable regardless of whether a 1099 is issued, and self-employment tax (15.3%) applies on top of income tax.
What’s the best first business for a teenager?
The Kauffman Foundation’s research suggests businesses built on existing skills — tutoring in a strong subject, creating digital products (templates, graphics, music), or selling handmade items — tend to be more durable than businesses that require significant upfront inventory or capital. The best first business is one that doesn’t require a loan to start.
Do teen businesses need a business license?
Depends on the location and type of business. Most municipalities require a general business license ($20-$75/year) for any business, even home-based. Some activities — food sales, personal care services, contracting — require additional permits. A 10-minute call to the city or county clerk’s office answers this before any revenue is earned.
About the author
Ricky Flores is the founder of HiWave Makers and an electrical engineer with 15+ years of experience building consumer technology at Apple, Samsung, and Texas Instruments. He writes about how kids learn to build, think, and create in a tech-saturated world. Read more at hiwavemakers.com.
Sources
- Kauffman Foundation. (2022). State of Entrepreneurship Annual Report. https://www.kauffman.org/entrepreneurship/reports/
- Internal Revenue Service. (2024). Self-Employment Tax (Social Security and Medicare Taxes). https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
- Internal Revenue Service. (2024). Publication 929: Tax Rules for Children and Dependents. https://www.irs.gov/pub/irs-pdf/p929.pdf
- U.S. Small Business Administration. (2023). Choose a Business Structure. https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
- Etsy. (2024). Etsy’s Minor Policy. https://www.etsy.com/legal/minors/
- National Federation of Independent Business. (2023). Small Business Economic Trends. https://www.nfib.com/surveys/small-business-economic-trends/
