If you’re an eBay seller, you may be paying more than you have to in taxes because you haven’t really focused on all that you can deduct.
Bubble wrap? Check. That digital camera you use to photograph your wares? Check.
Car trips back and forth to the post office? Check. Refund once you’ve figured it all out? Big check, possibly.
Some 2.2 million people run eBay businesses, and most of them are small part-time side projects, according to Rupesh Shah, a TurboTax product manager.
Their owners are so in the dark about the accounting and tax side of their businesses that his company, Intuit, created a special TurboTax product and a Web site just for them.
It’s a useful site, even if you don’t buy the tax prep software. It includes a list of deductions for eBay sellers, discussions of important tax questions like “hobby or business?” and explains the finer points of home office deductions. It even allows you a free question -- answered by a tax expert with special knowledge of the online selling business.
Should you buy the software? At $60, TurboTax Personal and Business for eBay Sellers costs about the same as the more generic version of TurboTax. And, yes, it’s deductible.
“It saved me a ton of time,” says Dan Schuessler, a Sacramento Intel employee who sells shoes on eBay. “It walked me through the complicated process for getting a home office deduction, so I didn’t have to do it myself.”
You can go to the site and do your taxes and decide after you’ve completed them whether you want to pay for the program and file your taxes. If you’ve already filed your 2005 taxes, you could use your newfound knowledge to see whether you left a lot of cash on the table.
If so, you could file an amended return for 2006. If not, you could wait for next year and buy the eBay version instead of the regular TurboTax product at tax time 2007.
It may be late for your 2005 tax picture, but it’s early enough to make sure you do things right for 2006.
Here are some financial tips, from Intuit and elsewhere, for online sellers.
- Be as businesslike as possible. If you run your online selling business in a businesslike manner with an intent to profit, you can take deductions for business use of your home and also grab every other deduction you have coming to you, even if it produces a loss that reduces the taxes you owe on your day-job income.
- Familiarize yourself with the categories of deductions on the Schedule C, which is the form most small independent businesses must file. Use TurboTax’s laundry list of deductions to see what kinds of items you should be tracking all year.
- Set up your records now, using a system that tracks those categories. You could do this as simply as setting up an accordion folder with a separate section for each category of receipts. Or you could use computer-based budgeting software, like Microsoft Money or Quicken, and set up the categories to relate to your business categories.
- Document. Those car trips and other business travel expenses should have your specific business purpose documented, so keep a log in your car and write yourself notes during your travels.
- on’t forget retirement! Even if you have a day job with a 401(k) plan, you’re allowed to set up another plan for your Internet business. Get advice or read up on whether you’d be better off with a SEP IRA, a solo 401(k) or even a defined pension plan. Then feed it with eBay earnings that can accumulate tax deferred until you use the money in retirement.
- Study your records to build a better business. It’s not just about taxes, of course, but fun and profit. If your records show that you’re spending more than you thought on boxes, tape, advertising and shopping, maybe your business isn’t profitable, and you need to rethink the way you run it.
Maybe you’ll see that you are selling some products for much bigger profits than others. If that is the case, adjust what you do and keep at it.
Before you know it, you could be quitting that day job altogether.