Successful Online Selling

Tax Basics for eBay Sellers

tax basics for ebay sellersYou cannot run and hide from the tax man. Hopefully it won't be news to you that as an eBay seller, you are required to pay tax on your earnings.

I'm not sure why many people believe that just because they are doing business over the internet that that means they are exempt from paying taxes.

It is a business and most countries understand that you are trying to make a profit on the items that you are selling on eBay, there therefore, tax is due.

If it has a "paper" trail, it can be taxed. With that being said, the US, UK, New Zealand, Canada, and Australia, all require tax payments when you are selling items to make a profit.

If you reside and do business from the US, then you are subject to a sales tax. Not only that, but you may even have to pay sales tax for the county that you live in. To do this, you are going to need an ID. To get a Sales Tax ID, visit to find your local state office. On the website, you will see your state, the tax rate, and any exemptions that you may rate.

To see if your county demands a sales tax, do a simple search of "Your county's name + tax." Some people believe that eBay is responsible for delivering 1099's after the seller has reached a certain amount by the end of the year. This is NOT true.

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eBay is only the facilitator for auctions. Since they own PayPal, however, PayPal is responsible for keeping all records of transactions.

What you do is request a transaction history for the year - or print it off - and start inputting all transactions of sales of which you received a profit.

If you took a loss on an item, you do not need to claim it on your taxes. But everything that is transacted through your PayPal account should be claimed and presented.

This is why it is highly recommended to have a bookkeeper. If you are not good at keeping the books in proper order, you probably will get flagged for audit if you move a certain volume of product.

The tax man just seems to love making examples of naughty sellers who do not pay their taxes. Be sure that one PayPal account is strictly for your eBay store and keep it organized. The way you are going to do that is to open a Business PayPal account.

There is a reason why eBay bought PayPal. They knew that people would have this problem and they are trying to make this a smooth process. But, of course, there are some complications.

There is legislation taking place, in the US in 2011 that requires PayPal to report anyone with over $20,000 in payment volume or 200 transactions a year.

paying taxes for online businessesIf you are all over the place with mixing personal purchases and transactions with your business account, then you are going to need to have somebody go through each and every transaction for the year and file it correctly.

This won't come cheap, as you will need a chartered accountant to do this for you. This is precisely why I recommend keeping all personal costs and PayPal transactions separate. That means if you want to buy something on eBay, you should use a separate 'buying' eBay and PayPal account.

Every country has certain changes in legislation and rules for filing taxes. The biggest thing to remember is that if you make a profit on any transaction, you have to report it to the tax man in whichever country you reside.

I would highly suggest that you get yourself a tax professional to look over your income and expenses.

Disclaimer: I am not a tax professional. All above content is for informational purposes only and should not be used in place of counsel from a professional financial adviser.

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