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eBay Tax And Legal Issues: 5 Things Ebay Sellers Need To Know

If you sell on eBay, it’s imperative that you keep up with the laws and guidelines that affect your online business. According to E-Biz attorney Cliff Ennico (http://CliffEnnico.com), author of The eBay Seller’s Tax and Legal Answer Book, staying informed and up-to-date on your legal responsibilities as an eBay seller can spare you many unnecessary problems. The following are a few of the most common issues that new eBayers often mishandle:

• EBay income taxes. Many seller...

ecommerce,drop ship,dropshipping,estore,auction,ebay,internet,ebiz,home ebiz,products,sell,dropship

If you sell on eBay, it’s imperative that you keep up with the laws and guidelines that affect your online business. According to E-Biz attorney Cliff Ennico (http://CliffEnnico.com), author of The eBay Seller’s Tax and Legal Answer Book, staying informed and up-to-date on your legal responsibilities as an eBay seller can spare you many unnecessary problems. The following are a few of the most common issues that new eBayers often mishandle:

• EBay income taxes. Many sellers regard eBay as a hobby, but there are considerable advantages to treating your online selling as a business and filing a Schedule C. It qualifies you to take all the tax deductions to which self-employed people are entitled. And even if you lose money on eBay, you’re able to apply that business loss against other income, such as your day job. Advises Ennico, “When in doubt, file Schedule C.”

Unlike most nine to five jobs, when you sell online, you’re responsible for withholding your own taxes. That means you need to get used to living on about two-thirds of your gross income and setting the rest aside. When you start receiving checks and PayPal payments, don’t just run out and spend it all – start escrowing money for taxes.

• Listing discrepancies. You may not realize it, but your posted item descriptions are legally binding warranties. Your item must thoroughly conform to your posted description, or your winning bidder has every legal right to return it.

• Posting Terms and Conditions. Many eBay sellers go to one extreme or the other here. Some sellers scare away potential bidders by including page after page of Terms and Conditions. But maintaining terms that only a lawyer could wade through gives the impression that you’re hiding something in the fine print.

Other sellers make the mistake of not having a Terms and Conditions section at all. However, it’s important to clearly explain your policies and procedures. You need to tell your buyers – in plain English – what you will and will not be doing, and what they should expect from you.

• Drop shipping. If you’re having the items you sell on eBay drop shipped, you have no control over inventory. You want to avoid getting into a situation where your auctions close and you can’t deliver the items because your drop shipper has run out. That’s why you need to be in regular communication with your drop ship supplier. You always want to know where their inventory levels stand, especially for your most popular sellers. You can also state on eBay that items are “subject to availability”.

• Illegal selling practices. Few sellers understand the seriousness of shill bidding, and far too many engage in it. Having friends drive your bid prices up, when they have no intention of actually purchasing the items if they win, is considered a form of consumer fraud. While shill bidding can be hard to spot, eBay employs both software and employees to search for suspicious patterns. “Never collaborate with someone to artificially inflate your auction prices,” cautions Ennico. “If eBay catches you, they’ll not only kick you off their site, but they’ll report you to your state attorney general for prosecution.”

EBay can be an exciting and lucrative venture, but it’s important to remember that the law still applies there. Complying isn’t difficult – it’s just a matter of being aware. Knowing how to deal with these issues puts you in a very safe position, so you can focus on what you do best – selling profitably on eBay.

 

Is Your Ebay Income Taxable?

The income you get from selling items on eBay is just like the income you get from any other business: it is taxable, at least in theory. In practice, many get away without declaring profits from their eBay sales just because they’re hard for the government to track. If you want to be strictly within the law and legit, though, you should be paying tax.

Income is Income.

If you make money from it, then it’s income – and if it’s income, then it’s taxable. There is a quest...

The income you get from selling items on eBay is just like the income you get from any other business: it is taxable, at least in theory. In practice, many get away without declaring profits from their eBay sales just because they’re hard for the government to track. If you want to be strictly within the law and legit, though, you should be paying tax.

Income is Income.

If you make money from it, then it’s income – and if it’s income, then it’s taxable. There is a question of scale involved, though, where the more you’ve sold, the more important it is to declare your eBay income. If you don’t, you risk getting yourself into all sorts of trouble.

There are some rules for deciding whether your income counts as taxable or not. If you depend on the income you get from eBay, spend a lot of time on it, or just act as if you are running a business, then you need to file a Schedule C tax form and pay tax as a business.

How Do I Work Out How Much to Pay?

The ‘income’ you make from eBay is how much profit you make. Remember that you can subtract absolutely all of your costs from this income, like this.

Sale price - cost of item - eBay fees - PayPal fees - cost of postage - cost of packing materials = income.

For example, let’s say you sell CDs for $10 each, including shipping. You pay $5 for the CDs at wholesale. That’s $10 - $5 (cost) - 25c (insertion fee) - 52c (final value fee) - 30c (PayPal fixed fee) - 29c (PayPal percentage fee) - 37c (stamp) - 50c (packaging) = $2.77 income.

For reference, eBay’s final value fee on a $10 item is 5.25%, while PayPal’s cut is 30c + 2.9% for most sellers. These numbers will vary depending on the value of what you sell and the kind of account you have.

When you work this out at the end of the year, you can calculate your overall price for all sales, and then work out how much of that you actually received, remembering to adjust for non-paying buyers. Then just subtract what you spent on shipping and packing. There’s no real need to do tax calculations on a transaction-by-transaction basis, although it is advisable to keep a printed record of everything you buy and sell.

However, there could be a few advantages to paying tax on your eBay sales – you might be able to make it back through deducting tax on your business expenses. All of the costs in the sum above that aren’t profit are business expenses and so tax-deductable. You may also be able to deduct the cost of any computer equipment you buy, as well as ink and paper for your printer. You could even try something a little unusual, like deducting the cost of renting your home office from yourself.

Whatever you do, though, don’t just rely on the information in this email. If you want advice about tax issues, you should really go to an accountant.

Another way to make back the money you spend on tax, of course, is to simply make more profit on each item to begin with. Our next email will show you how to get more bidders with the power of pictures.

 

Tax Tips For eBay Sellers - Turning Personal Expenses Into Business Expenses

Few people realize that starting a side-business on eBay is actually a great way to save money on your taxes. The trick is to make sure you’re putting all the additional expenses you incur against your additional income. Running an eBiz allows you to take numerous deductions that can add up to a lot of savings.

Deduct Your Home Office

By definition, if you’re an eBay seller, you have a home office. You have to have a space that’s used exclusively for business, whether i...

Few people realize that starting a side-business on eBay is actually a great way to save money on your taxes. The trick is to make sure you’re putting all the additional expenses you incur against your additional income. Running an eBiz allows you to take numerous deductions that can add up to a lot of savings.

Deduct Your Home Office

By definition, if you’re an eBay seller, you have a home office. You have to have a space that’s used exclusively for business, whether it’s in your spare room or your basement. But having this allows you to take a percentage of your mortgage interest, your utility bills, your homeowner’s insurance, and your homeowner’s dues as deductions against your business. And if you use your home to store inventory, even if it doesn’t have its own room, you can include that space in your deductions as well.

Deduct Your Children’s Pay

Rather than giving your kids allowances, pay them to help out with your business. You’re moving income out of your tax bracket, and you can pay them up to $4,900 a year before they’ll have to pay taxes on it. Tax strategist Diane Kennedy, of http://TaxLoopHoles.com, says there are three rules to employing your child:

1. Have some kind of written job description.
2. Make sure they’re keeping track of the time they actually work.
3. Pay them a reasonable wage.

Says Kennedy, “Take a look at…personal expenses and how they could become business expenses. Things like employing your kids, having a home office, maybe your car you’re using to run errands—look at all the things you’re spending money on now that could become business deductions.”

How to Protect Yourself

You need to be able to prove your deductions are legitimate business expenses, so it’s crucial you keep good paper work on everything. Track where your money’s coming from and what your costs are, and have documentation to back it up. Should the government ever have questions, you’ll be glad you did.

Good record keeping will go a long way towards satisfying the IRS. But you can lessen your chances of getting audited in the first place by forming a corporation or an S-Corp. If you default to a sole proprietorship, you have a one in twelve chance of being audited. Incorporating also gives you certain tax advantages.

When done properly, selling on eBay allows you to save money on the back end with taxes. As Kennedy says, “So many people don’t realize that just by having this little side business, they can actually immediately start paying lesser taxes. In fact, we say ‘eBay tonight and pay less taxes tomorrow.’”

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