| The only things sure in life are death and taxes. We'll skip the death conversation and focus on the tax side of things, as that's (hopefully!) more relevant to budding eBay sellers. Collecting Sales Tax If your state has a state sales tax (and all but Alaska, Delaware, Montana, New Hampshire, and Oregon do), you'll need to charge sales tax on all sales made to buyers who live in the same state you do. You do not have to, at this point in time, charge and collect sales tax on sales made to out-of-state or out-of-country buyers . Of course, when you collect sales tax from a customer, you also have to report and forward that tax to your state government. This procedure varies from state to state, so you'll have to check with your local authorities (or your accountant ) to get the proper details. You can also find this information online; check out the list compiled by the Multistate Tax Commission (www.mtc.gov/txpyrsvs/actualpage.htm). caution  | Not that I'm recommending it, but occasional eBay sellers can probably get by without collecting sales tax ”just as most individuals running garage sales fly under the tax radar. When you're running a legitimate day-to-day business, however, there's no sliding by this requirement ”you must collect sales tax, and you must report your collections to your state tax authorities. Failure to do so has legal implications. |
Paying Taxes on Your eBay Income While we're on the subject of taxes, here's another one you're not going to like. When you're running a legitimate eBay business, you're going to have to report the income you generate from your eBay sales. Failure to report your income is definitely actionable . Again, if you're just selling a few items a month, the government probably isn't going to come after you for nickels and dimes. (Although they could if they wanted to.) But when you become a high-volume professional seller, your eBay activity is a real business ”and real businesses have to pay taxes. That's all there is to it. caution | | Let me repeat ”if you're generating significant income from sales on eBay, you must report that income to the government! |
If you're running a sole proprietorship, the income you generate from your eBay sales, less any expenses related to those sales, is your business income, which you report on IRS form Schedule C. Your business income then becomes part of the calculation for your personal income tax, which you report on your normal form 1040. Since you're working for yourself, there's no employer to withhold taxes from your paycheck (what paycheck?); instead, you'll need to estimate and pay these taxes quarterly, using IRS form 1040-ES. (You'll also need to pay state quarterly estimated taxes, using the appropriate state form.) Of course, most everything you spend money on that's related to your business can be deducted as an expense. And I mean everything ”Internet service, your computer, automobile trips to the bank or office supply store, even a fair share of your household utilities (for that portion of your house you use as a home office) may all be legitimate deductions ”and the more deductions you have, the lower your reportable income for tax purposes. This is another reason to hire a professional to handle your business accounting and taxes; he or she will know just what you can and can't deduct. Chances are your accountant will find things to deduct that you never thought of ”which will more than pay for his or her fee. "Mike Sez"  | It's important that you factor your quarterly tax payments in your budget. If you're used to having a regular job, with your taxes automatically deducted from each paycheck, this will be a new thing for you. When you run your own business, you're responsible for estimating your own taxes ”and for making those payments every three months. |
That said, when it comes to taxes, you should definitely seek the advice of a trained professional ”a certified public accountant (CPA) or enrolled agent (EA). You can also get "official" tax information from the Internal Revenue Service; check out the IRS's Small Business One Stop Resource Web site (www.irs.ustreas.gov/businesses/small/), shown in Figure 5.1. Figure 5.1. Get small business tax advice from the IRS.  Withholding Employee Tax If you have employees working for you in your eBay business, you'll need to withhold income tax from their paychecks , and then report and pay this tax to the state and Federal government. (This is yet another good reason to employ the services of a qualified accountant.) The Federal form you need to file is the SS-4. More information is available on the IRS Web site. For state withholding information, check out the state-by-state list compiled by the Federation of Tax Administrators (www.taxadmin.org/fta/link/forms.html). |
