Should kids pay taxes on a lemonade stand?

Each summer, entrepreneurial kids will hit the driveways of America selling cookies and lemonade to passersby. Little thought is given to the legalities and regulations of this rite of passage because, after all, they’re just kids, right?

One year at the US Open in Bethesa, Maryland, a group of kids decided to have a lemonade stand in hopes of earning some money.  They were shut down because they didn’t pay the $500 vendor fee.  Meanwhile, other (older) entrepreneurs who paid $300 for land use permits continued collecting $60 parking fees so that they could have cars parked on their lawns.

After some noise was made, the cops allowed the kids to continue, and waived the $500 fine that their parent’s received. But, is that really fair?

I’ll admit, I’m a bit torn on this issue. I agree that there is a difference between making $10 here and there, and having a stand that brings in several hundred a day.  But I don’t think that shutting it down kills the American dream like the mother stated in the video.

I’m all for entrepreneurship. I had a lemonade and cookie stand for several years with my best friend Lyndsay during our annual block-parties.  And no, we never were shut down or visited by the health department, or fined because our cookies weren’t made in a state-approved kitchen …even though one of our neighbors was a Detroit Police Officer.

This could have been a great lesson for the kids, if the parents took them to do research on what was required in their county or city.  Why didn’t they go through the whole business process from beginning to end?

  1. Price the lemonade, water, and materials needed to create the booth to determine the break-even point.
  2. Go down to the city clerk’s office to see what was needed to set up the business.  I agree that a $500 vendor fee is way too hefty for a kid’s lemonade stand. It would be really cool (not to mention incredibly cute) if the city had special kid permits for $5-10, just so kids could go through the process of setting up a business, without the grown-up fees.
  3. Go through an advertising and marketing plan. (It could be something as simple as waving signs out on the corner or passing out flyers to all of the neighboring homes.)
  4. Actually run the stand and business.
  5. Afterwards, go through the income. Determine profitability, net loss, and all that fun stuff.  Parent’s could even take a little out for ‘taxes’ which then could be donated to the charity of the kid’s choosing.

Kids emulate their elders, and by instilling in them that you can’t just start a business without doing some leg-work first is a wonderful way to encourage thinking before action.  Develop a plan, do the research, follow-through, reflect and plan again.

 

 Think about all the extra money you could make by being a mystery shopper, starting your own business, or working from home for a legitimate company.  Take control of your income and check out our LEARN page for a list of classes, books, and more!

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