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I will be on the eBay Selling Coach’s internet radio show on Friday, January 16 to talk about taxes for eBay sellers. The show airs at 1:00 PM, Eastern Time.

Click here for details on how to listen or call in with your questions. The show will be recorded as a podcast, so if you miss it, you can listen as soon as the podcast is uploaded.

*** If you missed the live call, you can listen to the recording here. ***

Related Posts:

• PayPal and Ebay Must Report to the IRS
• List of Tax Deductions for Online Biz Owners
• The IRS and eBay: Tax Season Is Here

Buried deep in the housing act that was just passed is a provision that requires credit card processors – including companies like eBay and PayPal – to report annual gross receipts of it’s merchants to the IRS.

Credit card processors will be required to file Form 1099 for each merchant that has at least $10,000 in gross sales and 200 transactions.

Companies have until 2011 to comply with this new law.

The purpose of this new law is to raise revenue for the housing recovery package and to close the tax gap that exists.  The IRS estimates that it loses billions of dollars in tax revenue from small businesses who under-report (or don’t report) income.

While I’m worried that this new law will cause the cost of business for small and online business owners to go up (in the form of higher eBay fees, higher PayPal fees, etc.), I also think that all small business owners should pay their fair share of taxes (I pay my taxes, why shouldn’t all small business owners?).

So here are some tips to help online business owners comply with the new tax law, without paying too much to Uncle Sam:

• Treat your business like a business.  Register a business name, hire an accountant, keep good records.  The more you can do to treat your business like a business, the less likely the IRS will reclassify your business as a hobby.
• Keep separate accounts and records – have separate eBay, PayPal and checking accounts for your personal and business activities.
• Report your income!  Even if you don’t receive a 1099 from eBay, PayPal or the other companies that will be required to file one, you should still report all of your profits from your online business.
• Learn what’s deductible and what’s not deductible – you’d be surprised how many people do not deduct business expenses because they don’t know they can.
• Don’t be afraid of the home office deduction, and other deductions that have been labeled as a red flag.  Being a small business owner is a red flag, but that doesn’t mean you should go out of business, or worse, not report your income!

To read more about the new IRS rules, and how they affect online business owners, please visit Online Sellers Face New IRS Rules in today’s WSJ.

Related Posts:

• The IRS and eBay: Tax Season Is Here
• Do You Pay Taxes On eBay Income?
• Tax and Accounting Solutions for eBay Sellers

With the economy slowing, gas prices rising, and unemployment rising, more and more people are turning to eBay to earn extra cash.

The IRS has always had an eye on eBay and even tried to force them to report details of it’s top sellers last year. While eBay resisted, the IRS is still trying to find ways to track people who sell online – especially since they suspect that over half do not report the income earned!

from DenverPost.com on 6/7/08

Selling Stuff on eBay? IRS Wants It’s Cut

Basement clutter and attic knickknacks have always been the cornerstone of eBay — after all, one man’s trash is indeed another’s treasure — but tough economic times seem to bring them out faster and in abundance.

The Internet has turned into the fastest and easiest method of turning unwanted items into a quick — sometimes desperately needed — few bucks or more.

But experts and government officials warn that although the treasure is for the selling and the extra dough is for the getting, it’s not all for the keeping.

“You’re supposed to report any profit from those sales,” said IRS spokeswoman Jean Carl. “It’s a voluntary system for taxpayers to report it, and people are trusted to do that.”

And it’s not just eBay. Users of online marketplaces or auction services such as Craigslist.com and uBid.com are liable as well.All this comes as a surprise to many casual sellers who are doing little more than clearing out some space in their homes.

“I had no idea that if I wanted to sell on eBay that I have to pay the IRS,” said Ann Tran, a Golden resident who is contemplating eBay for some extra bucks.

Click here to continue reading…

Related Posts:

• Q&A: Do I Have to Pay Tax on Personal Items Sold on Ebay?
• PayPal and Ebay Must Report to the IRS
• The eBay Tax Tips Squidoo Lens – Top 100

I’m happy to announce that my eBay Tax Tips Squidoo lens made it to the Top 100 Overall list on Squidoo yesterday.   It  was at #99 yesterday and is at #74 today.  There are several hundred thousand lenses on Squidoo, so this is not an easy task to get on the Top 100 list!

I can’t wait til tax season is over so I can create more Squidoo lenses!

Related Posts:

• PayPal and Ebay Must Report to the IRS
• Selling on eBay? The IRS wants it’s share…
• Q&A: Do I Have to Pay Tax on Personal Items Sold on Ebay?

Q: I started selling items from around my home that I don’t want anymore on eBay.  I am selling BELOW what I paid for these items.  I’m not trying to make a profit, I’m just trying to get rid of items no longer wanted.  Is this considered a business?   Do I have to report my eBay sales to the IRS?

A: Selling personal items at a loss is not a business activity, so you don’t have to worry about keeping track of or reporting this activity on your tax return.

The IRS will not allow you to claim a loss for personal items sold on eBay.  However, the minute you purchase something with the intent of selling on ebay for a profit, you’ve got a business, and then you DO need to start keeping track of and reporting your activity.

Related Posts:

• Selling on eBay? The IRS wants it’s share…
• Tax and Accounting Solutions for eBay Sellers
• Q&A: Do I have to pay tax on a family heirloom sold on eBay?

Q:  What are the main deductions common to home based/online/ebay businesses?

A:  You are allowed to deduct expenses against your business income as long as they are ordinary and necessary for your business.  This basically means that if it’s a common expense for your type of business and it’s necessary in order for you to run the business, it’s probably deductible.

If in doubt, write it down, and let your accountant decide if it’s deductible.

Here is a list of the most common deductions that online business owners typically will have:

* Inventory
* eBay fees
* Web hosting
* Domain names
* PayPal fees or shopping cart fees
* Shipping fees and supplies
* Postage
* Office supplies – pen, paper, toner, folders, etc.
* Advertising – Google Adwords, ezine ads, website
* Mileage – use your car for business purposes
* Phone – cell phone or second line
* Bank charges – business checking account
* Accounting and legal fees
* Computer and software
* Internet, website and faxing services
* Contract labor – VA, coaches, web designer
* Furniture and office equipment
* Membership fees – Mom Masterminds, Client Abundancing Coaching Cafe, Jimmy Brown’s List and Traffic, etc.
* Continuing education – ebay classes, accounting classes, marketing classes
* Home office expenses – will discuss in detail later

This list is not all inclusive, there are a lot more expenses you could incur, but these are the most common deductions that online and home based business owners will have.

Related Posts:

• Can I Deduct Internet and Phone Expenses?
• What’s the Best Way to Keep Track of My Income and Expenses?
• Do I Need to Make Estimated Tax Payments?

Q:  My biggest question is deducting things like internet, phone etc. Do you have to save your statements in order to deduct that?  And can you deduct all of it or just a percentage? 

A:  Yes, you should keep statements or receipts for all of your expenses.  If you ever get audited and you don’t have written proof, the IRS will likely disallow that deduction.  Plus, you’re less likely to miss a deduction if you keep good records of it.

You should  only deduct the business use of certain expenses, such as internet, computer expenses, etc.

For example, if you have internet access, and you have a family of four using that internet, then you can’t deduct 100% of the internet. 

You should use your best judgement to determine the business percentage.  If you’re not sure keep a log of who uses the internet and for how long to get an idea of how much time is spent on the internet for business vs personal use.

Do this exercise for all expenses that are part personal and part business.

A quick note about deducting your phone…  You can NOT deduct your primary land line.  You can deduct a second line, or a cell phone, but not your primary home phone.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners.

Related Stories:
Home Office Tax Tips
Do I Have to Report My Online Income?
Can I Deduct My Expenses if My Online Business Had a Loss?

Related Posts:

• List of Tax Deductions for Online Biz Owners
• What’s the Best Way to Keep Track of My Income and Expenses?
• Do I Need to Make Estimated Tax Payments?

Q:  I’m a first-time Ebiz owner and am interested in knowing about software or methods that people use to keep track of their finances (for tax purposes).  What’s the best way to keep track of my business income and expenses?

A:  Everybody is different, so it’s really what works best for you. 

Most of the small businesses I work with prefer to use a software program such as QuickBooks or Quicken Home & Business.  But I have other clients who prefer to use spreadsheets.

If you’re not a numbers person, and you won’t keep up with or don’t understand how to keep track of your expenses, you may need to hire a bookkeeper. 

The most important thing is that you keep good records so that you get all of the deductions you are entitled to at tax time, and so you know where your business stands financially at all times.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners.

Related Posts:

• List of Tax Deductions for Online Biz Owners
• Can I Deduct Internet and Phone Expenses?
• Do I Need to Make Estimated Tax Payments?

Q:  Am I required to make estimated tax payments, and how do I do that?

A:  The federal income tax system is a pay-as-you-go tax system.  That means you pay taxes as you earn income throughout the year.  If you are an employee of a company, you do this through withholding.  If you are self employed, you do this through estimated tax payments.

The general rule is that you must make estimated tax payments if you expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and tax credits, then you may need to make estimated tax payments.

Also if you haven’t paid in at least…

*  90% of the tax due on your current year tax return, or
*  100% of the tax due on last year’s tax return

then you may need to make estimated tax payments.

Generally, you will estimate your tax liability for the entire year and divide that amount by four to determine your quarterly estimated tax payments.  IRS has calculators on their website to help with this. 
The due dates for estimated tax payments are:
April 15
June 15
September 15
January 15 the next year

Use Form 1040-ES to make estimated tax payments.  Your accountant should calculate and prepare coupons for you every year.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners. 

Related Posts:

• List of Tax Deductions for Online Biz Owners
• Can I Deduct Internet and Phone Expenses?
• What’s the Best Way to Keep Track of My Income and Expenses?

Q:  IRS rules say that a business must show a profit 2 or 3 years out of 5 years. My tax preparer says that if you are actively trying to build a business, that does not apply…that I can still take all my deductions and show a loss. What is your opinion on this?

A:  Actually, the rule is that if your business is profitable for 3 out of the last 5 years, then the IRS will presume that the business is carried on for profit, and is not a hobby.  That means if you aren’t profitable for 3 out of 5 years, the IRS MAY reclassify your business as a hobby, but that doesn’t mean that they will automatically determine that it’s a hobby.

It’s important that you treat your business like a business and not a hobby because if the IRS determines that you have a hobby you will have to report that hobby income, but you may not be able to deduct all the expenses you would be able to deduct if you have a business.  If you don’t itemize your deductions, then you could lose the ability to deduct ANY expenses!

Also, many businesses incur a loss in the first year or two of business.  If the IRS determines that you have a hobby instead of a business you won’t be able to deduct those losses.

Things to do to keep from being classified as a hobby include:

* get a tax ID number
* keep separate business and personal checking accounts, credit cards and PayPal accounts too
* register a business name
* hire an accountant, attorney or coach
* create a business plan
* keep track of the time you spend in your business and what you do

So… just remember that the IRS will make exceptions to the hobby loss rules, even if you have a loss for more than 2 years, if you treat your business like a business and not a hobby.

For more great questions and answers about online business taxes, please see ‘Your Top Online Biz Tax Questions Answered’, my new audio/ebook program for online and home based business owners.

Related Posts:

• Do I Have To Report My Online Income?
• List of Tax Deductions for Online Biz Owners
• Can I Deduct Internet and Phone Expenses?