Welcome to Outright.com join us to jump into the discussion or ask a question and subscribe here to follow the community
Right now most veteran eBay sellers are still reeling from the recent announcement of changes to eBay that are coming this Spring and figuring out how these changes will affect our sales in 2010. Meanwhile, we have to reel it in and start thinking about reporting our 2009 sales to the IRS.
For some eBay sellers, especially those new to selling on eBay, there seems to be a question about whether or not profit on sales made on eBay needs to be reported - but there really shouldn’t be. The profit you earn on sales made on eBay does need to be reported. Period. Whether you are a Top Rated Seller, Power Seller or someone who simply dabbles with eBay as a hobby, you do need to report the income that you earn. EBay income is treated like any other self-employment income. You will need to use Schedule C so that expenses like inventory, fees, utilities and rent can be deducted from that income to define a profit, which is considered taxable income.
Whether income produced from eBay was a primary income, secondary income, or hobby income, it needs to be reported as an income. A log journal or spreadsheet should have been kept along with receipts throughout the tax year in order to track income and expenses as with any small business. Furthermore, as many of you know, legislation has gone into effect so that as of 2011, all payment providers including PayPal, will be sending a 1099 to anyone who: 1) Receives more than $20,000 in payment volume in a single year; and 2) Receives more than 200 payments in a single year. The first reports will go to the IRS in January 2012 for tax year 2011. So, while formal reporting to the IRS from PayPal is still a way off, it doesn’t mean you can slack off in your reporting for 2009.
On the positive side, claiming your eBay business can help defray your taxes as well. Having a home business, like an eBay business can mean hundreds of legal deductions. I recommend hiring a CPA to help answer your questions and help manage the financial end of your eBay business. And I recommend the book Tax Loopholes for Ebay Sellers by Dianne Kennedy to help you discover home business tax deductions. My much-worn copy is by my side as I write this. This book is marketed as - and very useful as – a resource for making the most from your home-office tax deductions, but I also use it for its charts and check-lists that are helpful for staying organized year round.
Employer Identification Number
If you are completely new to selling on eBay or new to reporting your eBay income to the IRS, you may not be aware that you need a Federal Tax ID number, also known as an Employer Identification Number. Even if you do not plan to have employees, you will still need a Employer Identification Number for several reasons:
1. Wholesale purchases. Most companies that sell their products at low wholesale prices want to know that you are a retailer. The Employer Identification Number communicates to the wholesalers that you are a legitimate retailer and opens the door to wholesale prices.
2. Trade shows. To gain access to as a buyer at a trade show, most will require a Employer Identification Number to register to attend. Trade shows are one one of the best ways to meet new wholesalers and to get some great bargains. Many of the vendors at trade shows will waive their minimum purchase requirement and some will have merchandise that is available only at the show.
3. Filing federal income taxes. In order to take advantage of home office deductions as an eBay seller, you will need your Employer Identification Number when filing your taxes to take advantage of these income tax lowering benefits.
Getting an Employer Identification Number
Visit the IRS website, fill out an application and click the submit button. That’s it. If you are asked for money at any time during the application process, beware! You are not on IRS website. Believe it or not, the IRS will not ask for payment for a tax ID number.
Sales Tax
Sales tax varies from state to state. Most states require that you collect sales tax when you make sales to buyers who live in the same state where you operate your business. The eBay listing template has a place for you to enter the sales tax rate for your state. If you have not added this feature to your listings make sure you do so as soon as possible. Unfortunately, as far as I can tell, you can’t use the bulk editor to add your sales tax table to each auction so you will need to edit each listing individually. But you only need to set your state tax chart up once.
If a buyer lives in your state, the sales tax is calculated and added to the total amount for the sale. Once you have collected the sales tax, be sure to keep track of it. If you haven't set up your bookkeeping for your eBay store yet, now is a good time. There are great free accounting programs available to help, or you can use a simple spreadsheet and create a column or category for sales tax collected. In some states, you will need to pay sales taxes quarterly and in other states it is annually. If you have applied for a business license in your state, you should automatically receive a form that will have a few simple questions and a place for you enter the amount of sales tax collected. Most eBay sellers sell worldwide and the number of sales within your own state is likely to be relatively few and the tax minimal.
Did you find this post helpful? Share it with your fellow eBay sellers by tweeting this post!
