SaleHoo

[salehoo]

Not sure how tax works for eBay businesses? Do you even need to pay tax? And what is the best way to run your eBay business for tax benefits?

Find out in our new blog post "Get a Business, Get Tax Deductions and Get More Money"

** Link Removed: Only Available to Registered Members**

[Berk LLC]

Please let me make it clear that the salehoo admin who wrote this article has a very basic knowledge of the US Federal Tax Law. Although the majority of this article is correct, there are a number of items that are incorrect.

Sorry salehoo, I am not trying to say you are wrong, and it is good for people to know this information, but I want to clear some things up.

First of all on the registration of your company, you do not technically have to register anything to claim tax deductions. If you are a sole proprietorship and you operate under your full legal name, you do not need to register with the secretary of state. You can claim your business income and taxes within schedule C of Form 1040. A partnership, sole proprietorship, LLC, and an S Corp can all have the same tax advantages. You can run the business expenses through you personal income taxes. If there is more than one member who owns the registered company, you need to file form 1065 and related schedule K's for each owner and portions of the revenue and expenses our run through the 1065 and some directly through the owners returns. The schedule K's allocate the income to each owner. The advantage of these forms of business prevent the double taxation of profits. Let me know if you need more on this.

Limited Liability Companies, S Corps, Limited Liability Partnerships and C Corps, all provide relatively similar legal protection. I would recommend a LLC in most cases for people operating on eBay. Some forms of business that provide services must be a form of a partnership. To register your business is easy, go to your local state's Secretary of State website, and you should be able to download the forms and submit them. Then go to the IRS website and register for a Federal Tax ID.

As far as deductions of business expenses, this is much more complex than salehoo made it appear. There are many restrictions on deductions and if you claim certain deductions, even if they are valid, they are automatically flagged for review by the IRS and you have a much greater chance of being audited by them. First off is the home office deduction. I would not recommend taking this deduction unless you have consulted with a tax professional. In addition, if you start taking this deduction, when you go to sell your house in the future, you will need to recognize any gain you have received in selling, which can create a large tax bill in that year. Travel and Entertainment expenses including meals, you can only deduct up to 50% of the expense on your tax return. Any fines or penalties made to a government are not deductible. Start Up costs can vary. Everything is deductible, but you are not able to deduct everything in the first year of business. You must amortize some of the start up costs over at least a two year period. If you don't know what that means, that is a good indicator you don't know what you are doing and should consult a tax professional on your return.

Property Plant and Equipment can generally not be deducted all in one year, you need to use a form of MACRS based on the asset class of the property to correctly deduct the asset over a number of years.

Depending on the amount of income your company makes or even possibly losses, you must consider AMT taxes (Alternative Minimum Tax). You may be responsible for paying some taxes even if you have a net loss for the year.

One last thing, the IRS is very clear on the fact that if you have income from any activity legal or illegal, it is taxable. If you make 5 bucks selling a glass of lemonade, that is taxable income. There are minimum thresholds in which you may not have to claim certain types of income on your return, however refer to federal tax laws for these amounts.

Publication 17 is a good resource to research about taxes a little bit. It does a good job summarizing the tax code, but does not contain everything you need to know.

DISCLAIMER - Please note that I am NOT a tax professional, and this information provided should not be used in preparing your tax return. The tax return is solely the responsibility of the person completing the form and I do not take any responsibility to the statements made within this forum post.

[jazee_smith]

What if I'm an international seller. Do I need to pay tax?

[grace_salehoo]

Yes, you will need to pay tax in your own country on your earnings from selling on eBay.