Successful Online Selling
 

A Quick Guide to Paying Your Taxes

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When your eBay selling goes from being a hobby to being a business, you are going to have to start thinking about collecting and paying tax on the money you make. How do you know when it's time to start thinking about tax?

Well, if you are still selling items online that you have around the house, the money you make is unlikely to be taxable (technically you will be selling them at a loss, i.e. less than you paid for them, so there's no tax to pay).

However, if you are buying items to resell, and making a profit, this is taxable income and you should be declaring it.

For some eBay sellers, there may be a temptation to keep all the profit they're making, and not declare the additional income to the IRS. In the past, it might have been possible to get away with this.

It was difficult for the IRS to know who was making money from sites like eBay, and how much they were making, unless you were subject to an audit and the eBay was forced to hand over the information. However, things have since changed!

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eBay doesn't voluntarily provide the IRS with information on your sales - for one thing they couldn't accurately report how much money you were making (because they don't always know if a sale was successful).

However, the Government is taking steps to make it harder to operate as a professional seller on eBay without paying any taxes.

eBay could soon be asked to hand over transaction information for high-volume sellers, and from 2011, PayPal (who can provide an accurate record of how much you are earning) will have to provide information on customers who receive over $20,000 or 200 payments in a year.

Basically, if you are running an eBay business, even a small one, and you're making a profit, it would be wise to understand the tax implications and make sure you provide the IRS with everything they need.

To make dealing with the tax from your eBay business easier, here is some basic tax information for eBay sellers and advice that might help.

Keep proper records - When you start making money on eBay, you need to keep a track of all the figures and the paperwork.

This includes the products you buy and sell, and also receipts and invoices for business equipment and services. Keeping proper records will make it easier to file your tax return at the end of the year.

For most people running an eBay business, you will simply need to complete Schedule C of your 1044 Personal Tax Return, however, if you have set your business up as a partnership or Limited Liability Company, the tax returns will be different and you should check with the IRS.

Providing the IRS with an accurate and on-time tax return, should keep them away from your door. However, if they do come knocking, you'll have all the information you need to make any audit as painless as possible.

Get a Federal Tax ID number - A Federal Tax ID number often goes by a number of other names, but it is something you will need if you have to collect Sales Tax.

If you live in a state that has a Sales Tax, you need to charge this tax on any items you sell to customers within your state. The Government expects you to collect his tax for them and then send it to them on a regular basis.

You can obtain a Federal Tax ID number from your state tax office, who will also tell you how and when you need to pay them any tax you have collected.

Having a Federal Tax ID will also benefit your business as it means you can get a Resale License, and buy from wholesalers within the US, without having to pay the sales tax on the goods you are going to resell.

Make paying your taxes easier - If you'd rather be focused on growing your business than filling out tax returns, you might find it worthwhile getting some help.

There are various software programs, like Quickbooks, that can help make filing a tax return a lot quicker and easier, and you could always hire an accountant to do the work for you.

The few hundred dollars you might pay to take the hassle out of doing your taxes could well be worth the investment.

Finally, the good news - When you are starting an online business, the IRS lets you deduct the cost of many business expenses from the tax that's due on the profit you make.

To the money you spend on things like packing materials, eBay fees, your computer and internet connection, could all be deducted form what you owe the government.

You can usually deduct any losses you make on your sales as well.

Finding out what allowances and deductions you can make is all part of running a successful business and making sure that paying your taxes is not just about giving away your hard earned profit.

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