Thursday, June 26, 2014

I'm An eBay Hobby Seller Do I Need To Pay Sales Tax?

One Of The Last Sure Things...
IRS Won't Forgive Taxes Owed by eBay, Amazon 'Hobby' Sellers IRS Won't Forgive Taxes Owed by eBay, Amazon 'Hobby' Sellers
By Steve Weber
QUESTION: I'm a part-time "hobby" seller of used books on Amazon and eBay. Do I need to pay income tax on the sales I had last year?
ANSWER: Yes, you are required to pay federal income tax and self-employment tax on your net income from selling used books online, whether you sold them on Amazon, eBay,, ABE, Alibris, or any other venue.
Since you don't have an employer reporting your bookselling income and withholding a portion for taxes, you must inform the IRS about it yourself. It makes no difference that you consider your bookselling a "hobby." If you're making a profit, the IRS considers it a business, and wants its cut.

I'm assuming you won't be incorporating your business, so you'll need to report your bookselling income as a "sole proprietorship" on the long tax form, IRS Form 1040, Schedule C, "Profit or Loss From Business."
You can report your self-employed income using the personal editions of TurboTax or TaxCut software. These programs can save you lots of time, since they give instructions in plain English instead of the bewildering jargon of IRS instruction manuals.

If you made a profit during 2005 from bookselling, you'll also owe some state income tax for that, so I'd also recommend you also use the state version of TurboTax or TaxCut to figure your state tax obligation.
To complete your tax return, you'll need to account for every transaction involving your book business. If you're not already doing so, keep all your receipts and records, and put your expenses into categories such as "postage," "shipping supplies," "books," and so on. This is the information that will go on your Schedule C.
Next year, don't wait this long to get your affairs in order. With self-employed income, you're supposed to estimate your tax obligation during the year, and make quarterly payments on your profits, submitted with Form 1040-ES, by April 15, June 15, September 15, and January 15 of the following calendar year. Since you didn't do this during 2005, you may owe a penalty for late tax payments. If you were expecting a tax refund this year, it may be smaller than you thought.

For next year, I'd recommend you have a separate checking account to track expenses and income from your bookselling. If your bank enables you to download your transactions into Quicken or another personal-finance program, you can automatically categorize expenses such as "postage," etc., in Quicken. And next year you can transfer this same data into your tax-prep software. This will greatly lessen your bookeeping chores next year, and also give you a handy tool for examining the performance of your book business.

Tuesday, April 9, 2013

What Taxes You Are Responsible for as an eBay Seller

What Taxes You Are Responsible for as an eBay Seller
By Kristine McKinley

There are three types of tax that you will be responsible for when you start your eBay business. They are:

1) sales and use tax,

2) payroll tax and

3) income tax.

Sales and use tax - Just about every state, and many cities and other local authorities, imposes a sales tax on items sold. Each state has different rules, so it's important to find out the rules in your state and city. As a seller, you are responsible for collecting and remitting the proper sales tax to the state you live in. You are also responsible for preparing and submitting a report detailing the amount of your sales and the sales tax collected.

You may also be subject to use taxes. This is taxes on goods you purchased out of state that you did not pay sales taxes on. The use tax generally applies to items purchased out of state which would have been subject to sales tax if the purchase transaction had taken place in state. The use tax came about from the concern that purchasers could avoid paying a state's sales tax by making their purchases outside the state.

Payroll tax - The second type of tax that you are responsible for as an eBay seller is payroll tax. If you hire employees to help you with your eBay business, you are required to withhold federal income taxes, Social Security and Medicare taxes, and state income taxes. These taxes must be submitted to the proper tax authorities on a periodic basis (usually quarterly). In addition you must pay unemployment insurance and workers' compensation on all employees.

If you operate your business as an S or C Corporation, you will need to setup payroll for yourself, and remit payroll taxes on your own salary. If you operate as a Sole Proprietorship, you pay self employment tax instead of payroll tax.

Income tax - The final type of tax is the income tax. No matter how your business is structured, you will be required to pay income tax on the business' net profit.

Sole Proprietors pay income tax on their personal income tax return (Form 1040). Your business profit is calculated using Schedule C - Profit or Loss From Business, and your profit is added to your other income to determine your tax liability.

S Corporations file Form 1120S to report the business profit or loss. A Schedule K-1 is then prepared, which shows each shareholder's share of the net profit or loss that needs to be declared on their personal tax return.

C Corporations file Form 1120 to both report the business net profit and to calculate the resulting income tax.

Depending on the state you do business in, you may also be subject to state income taxes on your business profits. The state level taxes are often referred to as franchise taxes.

Kristine A. McKinley, CPA, Certified Financial Planner�, and co-author of Ebiz Tax Tips - How to Minimize Your Taxes and Maximize Your Profits, offers financial and tax planning on an hourly, fee-only basis. She specializes in helping home based and online business owners understand and minimize their income taxes.

For more information on eBay and taxes, sign up for our free special report 'Top 5 Tax Tips for eBiz Owners' or visit our blog at

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Thursday, January 17, 2013

Things That Newbies Forget About eBay

Things That Newbies Forget About eBay
By Kerri Van Veenendaal

I have been involved with ecommerce for over 10 years and have for the last couple of years been working with businesses that are starting out on the long trek of on line retail.

The very first place many of them head is to eBay. Especially for Australian businesses this is basically the only major market place that they can try out. When I sit down with a business I ask some general housekeeping issues regarding their listings.

1. What is the cost of your listing? In other words have you factored in the listing fee plus the final value fee? Many times they have not actually calculated the full cost. They have not added the gallery fee, or the final value fee.

2. Have you ever read your eBay invoice? The answer is usually, 'well I got an email and I haven't actually opened the invoice and gone through it'. So I ask you all, how many times have you gone into a shop and paid for a service without checking the bill or actually adding up the tab? So why do so many business people just not even go through their eBay invoice. The answer is, eBay deliberately make the bill hidden. It is just there, and it is confusing, long, complicated and takes hours to reconcile. But, you must go through it. eBay are not without mistakes and they happen. If you don't find them you simply pay more.

3. Where is your money sitting that you have earned from the sales? A lot of newbies have their money sitting in PayPal. This is another problem. Like any business, your PayPal account needs to be reconciled. You need to set a particular time every day or every week when you transfer your money from your PayPal account to your business account. Then you need to reconcile this with the sales that have taken place. This is no different to reconciling your cash register in a store. It must be done for accounting and tax purposes.

4. What end margin after the fees and the time are you making with the eBay sales. Some business that I work with work on very small margins. They may only be making a 25% margin on a product. Be careful, once your eBay fees come out, and the PayPal fees, this can gobble up more than 12% of your margin. In some cases I have actually seen new e-tailers only making 2% margin which then does not even cover their cost of labour, packing and rent.

5. Hidden extras. Like all businesses the eBay model likes to upsell you. Be careful if your margins are small. Adding a sub-heading may help you product sell, but what is the point if you don't make any money. Then there is the fee for your eBay store each month, fees to schedule your item, template fees, extra photos. All of these eat into your costs. eBay recently sent out to new sellers an 'improve your performance or else' email. This was a fear mongering email that eBay sends out to start you thinking that you need to add more of these on your listing. Beware is it a clever marketing trick to make you buy these hidden extras. One of my clients actually had a 100% perfect feedback score and got an email from eBay telling them that they had to improve their performance. If you get this please realise that eBay is in the business of making money.

In all eBay has an excellent place in the online retail arena, but it is not the place to only sell your products. Remember don't put all your eggs in one basket and certainly remember that eBay can easily pull the plug on your business without your consent. So please spread your product around and be aware of your costs.

Kerri Van Veenendaal has been an expert in online retailing for over 10 years. She has consulted to many companies and is now sharing her thoughts through this article.

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Thursday, January 10, 2013

EBay Bookkeeping Made Quick & Easy

EBay Bookkeeping Made Quick & Easy
By Janean Wilson
If you plan on selling items on eBay as a business, you will need to keep track of your income and expenses.
1. Save your Receipts.
When you buy inventory items to sell on eBay, always save your receipts.
You will need to record the cost of an item as a business expense.
2. Use Inventory Sheets.
An Inventory Sheet is a fill in the blank form for recording income and expenses for an item.
Begin each eBay seller transaction with a new Inventory Sheet.
Inventory Sheets are used to keep a permanent record of your sales transactions.
3. Accounting Software.
I began using Quicken to keep track of my eBay income and expenses.
After payment as been made, I use my Inventory Sheet to gather the information needed to make a record of income and expenses in my Quicken Register.
Use the date paid for your entry date.
Use your item number for the check number.
Each sale will require two register entries.
The first entry will show the total amount of money paid to you from the buyer.
This money will be recorded as a deposit.
For the Payee use "eBay item Sold", use this payee name for all sold item income entries.
Quicken allows your to split this money into different categories.
Make two categories called "Sold Price" and "Shipping and Handling".
For the memo, use eBay's item number and a brief description of the item.
The second entry will show the total expenses for the item being sold.
Use the date of payment for this entry.
Call this payee "Expenses" and record this as a payment.
Split your total expenses for this item into different categories as shown on the Inventory Sheet.
The running balance will be your net profit.
If you purchase office supplies make a separate entry and record this as a payment.
Supplies can also be split up into different categories.
This is as simple as it gets.
The Inventory Sheet is the key to making eBay bookkeeping quick and easy!

Wednesday, January 2, 2013

Why Is Accounting Important To Your eBay Business?

EBay accounting and why it's important to your eBay business

Author: Craig Cosford

As an eBay seller you should understand that keeping records of your finances is very important, this article will briefly discuss eBay Accounting and why ot's important to your business. Many sellers start off on eBay without giving a thought to keeping accurate records and this usually results in a massive headache at a later date. Each and every transaction in and out of your business needs to be recorded to keep track of how much profit you are making but more importantly for your tax records. It doesn't really matter which method you use to log your transaction history as long as you can provide this information to the appropriate people at the end of the financial year. For example if you live in the UK you would be required to complete a tax return and submit it to HM Revenue & Customs.

Selling on eBay you will most likely take payments via PayPal. This is a good advantage as PayPal will allow you to download all your sales history (go to history > download history) to a CSV format which can be opened in Excel. The report will show all sales, purchases, refunds, etc. Setting up a spreadsheet to log your sales is probably the easiest solution for most people as it doesn't cost anything however as your business grows you may find that you need something a little more advanced. There are many options available these days and my advice is to just trial them until you find something you are happy using. There are also online accountancy/book-keeping packages you may wish to consider such as">Kashflow which can completely automate your record keeping process saving your hours if not days of your time.

Accounting & book-keeping is also necessary to find out how well (or not) your business is doing. By recording your business transactions you will be able to product a profit and loss report each month which will detail exactly how things are going allowing you to make crucial business decisions moving forward. Seeing money coming into your business it's very easy to assume that things are going great when in reality after all expenses are taken away you are losing money. Having accurate book-keeping will allow you to analyse your business finances and establish areas that can be improved.

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About the Author

Automated online accounting software can really help organise your financial records and save you the headaches. You may wish to take a read of my Kashflow Review to read more about the benefits.

Wednesday, December 26, 2012

eBay Accounting Solutions - The Automated And Free

eBay Accounting Solutions - The Automated Solution
By Ethan L Pepper

Anybody who's sold on eBay for a while has learned that eBay doesn't make it easy to calculate how much money you are actually making or losing. With Final Value Fees, Listing Fees, PayPal Payment Fees, Shipping Costs and Returns it can get to be a bit much. Especially since eBay treats all these different fees and transactions in different ways. For example Final Value Fees and Listing Fees are added to your monthly eBay invoice. However, PayPal Payment Fees are take directly out of the payment itself. Returns are treated like a separate PayPal transaction altogether. Most people rely on Spreadsheets like Microsoft Excel or accounting software like Quicken or Quick Books to handle their accounting. The problem with this approach is that they don't allow you to easily import data from PayPal. Instead you must download files and then edit the results using a CSV file. Which is all very time consuming.

Then there is the simple idea of doing everything on an Excel Spreadsheet. Which I also tried, creating columns for all the different eBay fees, PayPal Fees and Shipping Cost. When you have hundreds of transactions a month though it can become mind numbing to go back through all your PayPal and eBay records and manually transcribe the data. Plus, a simple error can ruin everything. That's when I came across an interesting solution: an accounting application being offered through an eBay third party developer. The application promised to do some pretty amazing things, namely to import all PayPal Payments and eBay and PayPal Fees. Fees would automatically go under expenses and Payments under income allowing you to only enter shipping cost and cost of inventory. It also said that it could create tax information for quarterly or yearly tax payments. I was skeptical but at the time the application was free so I gave it a shot. I must say I was amazed at how much they delivered on what they promised. It become very simple to keep track of expenses and to see how well I was really doing as a seller.

Even though they have recently moved to subscription based service I still believe it is one of the best accounting solutions for eBay sellers. For small monthly fee it frees up much of the time spent on mundane accounting tasks to allow you to focus on what you need to: growing your eBay business.

Enjoyed this article? Join us on eBay Selling Tips for more advice and strategies for making the most of what eBay has to offer. Boost sales and profits.

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Taxes & Accounting For eBay Sellers

Taxes & Accounting For eBay Sellers
By Eruwan Gerry
Here are a few tips on doing your taxes and accounting as an eBay seller:
1. Do not forget, you need to collect sales tax from buyers who live in the same state where you reside (unless you live in one of the handful of states that does not collect sales tax at all, of course). When tax time comes, you need to report to your state's department of revenue, too. If you collect payments through My eBay and PayPal, sales tax is calculated automatically for you and added to the invoices that are sent to your customers.
2. When you set up a business for yourself, whether it is a sole proprietorship or a corporation, you need professional help. A qualified tax accountant can help you set up deductions, depreciate equipment, and create a schedule by which you need to pay your taxes. The hundred or two hundred dollars you might pay for an accountant are more than made up by your savings in taxes and penalties.
3. Be aware of when you need to pay your taxes. April 15 may not be the only tax dateline you need to observe. You need to pay an estimated tax on a quarterly basis when you are in business for yourself, and report business profits or losses.
4. Keep detailed books of your sales data. Do not depend on eBay to be your only source or records. Create a database or a table in a word processing document in which you record sale prices, purchase prices, and other expenses. Make sure you record sales tax, any payroll expenses, your gross profit margin, and descriptions of the items you sell.
5. One of the best kinds of financial records you can keep is a balance sheet. This tracks your assets and your liabilities, and your income and expenses. On one side, you have your equipment and inventory, your cash on hand, and your other assets. On the other side, you record expenses, bills to pay, sales tax, payroll and other liabilities.