Many people make a living with online sales through eBay and amazon, but many of these sellers are not up on their taxes what-so-ever. 2011 is a game-changer, now companies like amazon and eBay are required to serve their sellers a 1099-K. The 1099-K outlines how much these sellers have been distributed.
Why is these changes so important? Sadly, many sellers do not pay their taxes. Going through the amazon seller forum, you see posts entitled “Do I have to pay taxes on my income?.” You click on some of their profiles and they very active and have been selling for 5+ years! Unbelievable these people snuck buy for so long, but it ends now.
Taxes such as:
- Sales tax if applicable (That amazon does not collect)
- Payroll taxes (which eat a substantial amount of your bottom-line)
- Federal taxes
- State taxes
- City taxes
Many sellers were able to hide in the shadows of the online world, but no longer.
I myself am a very active amazon seller. I am now in the process of researching the best method to approach my taxes with my side business that I started this year. This year I will most likely have to file a Schedule C (to figure out net income for taxes) and a Schedule SE (to pay employment taxes).
Many people suggests S-corporations or LLCs that offer some tax benefits, but at the end of the day – no matter what you choose it going to result in you paying a lot taxes and doing a lot of paperwork. A sole proprietor offers virtually no tax benefit and is viewed as slightly brutish, but it is also the easiest way for someone who makes a few thousand bucks a year. Note that if you are selling only personally items and are not making a profit (selling for less than you paid), then you most likely do not have to file anything.
Many sellers maybe required to file quarterly estimated taxes. You think most of these online sellers are doing quarterly taxes? They are not. That isn’t to say the big players aren’t on top of things. If you have revenues of over a million – odds are its in your best interest to hire an accountant. Sadly I think there are an overwhelming amount of people who are making some money (think $15k – $40k) who are going to be crippled or even removed from online selling once they fact the true tax bill and time to keep proper books.
I for one want to be as transparent as possible to the government. It is important to pay your taxes – I just wish all of the paperwork wasn’t involved.
Disclaimer: Follow all federal, state, and local laws. Keep proper records and pay all applicable taxes. CONSULT A PROFESSIONAL ACCOUNTANT for your tax needs. Epicfinances.com is not to be used as a reference for your actual tax preparation.