Tax Tips for Home eBay Sellers
Today’s post is by guest blogger Kristine A. McKinley, CPA, and CFP® – an accountant who specializes in helping self-employed individuals who work from home and/or on the internet.
Tax tips in September? You may think it’s too early to think about taxes, but the truth is you need to do tax planning year-round so you don’t miss out on any tax benefits that you are entitled to. If you wait until tax season to think about taxes, you could miss out on tax deductions and credits that you would otherwise qualify for.
Here are some quick tips to help make sure you don’t overpay Uncle Sam this year:
1. Keep good records. Many people miss out on valuable tax deductions simply because they misplaced a receipt or didn’t record a business expense/purchase.
2. Know what expenses you can deduct. Another reason people miss out on deductions is because they don’t know what they can deduct. Here are some of the common tax deductions for eBay sellers: inventory, shipping, eBay fees, PayPal fees, office supplies, internet fees, computer software and equipment, contract labor (VA or eBay assistant), fax, and phone. You should keep an eye on new tax laws for new tax deductions and credits that you may qualify for.
3. Don’t be afraid of deductions because you’ve heard they are a “red flag”. Many people choose not to take the automobile expense deduction or the home office deduction because they are afraid of being audited. These deductions can be substantial if you travel a lot for your business or if you have a designated home office. As long as you qualify for and have proper documentation, there is no reason why you should not take these deductions!
4. Don’t forget the self employment tax. As a sole proprietor, you are subject to SE taxes (15.3%) on your net profits, and this is on top of your regular income tax! This can really sneak up on new business owners, so a good rule of thumb is to set aside 25-30% of your net profits for taxes. You may also need to make estimated tax payments to avoid interest and penalties.
5. Final tax tip, and this one is my favorite! Consider hiring your children to help in your eBay business. In addition to allowing your children to earn a little extra money, and teaching them about business, there are several tax benefits to hiring your children.
I hope you found these tax tips helpful! This is just the tip of the iceburg… for more tax tips for eBay sellers and other ebiz owners, please visit Internet Biz Tax Tips.
Kristine offers financial and tax planning on an hourly, fee-only basis. She specializes in helping online business owners understand and minimize their income taxes.
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