Are there tax benefits if I get a business lisense for selling things on online auctions?

Question

I'm thinking about turning my online selling into a business, and I'm trying to get a feel for the tax-related pros and cons of making it official.

Here are 2 questions:
(1) I understand that I can write off business expenses on my tax returns. That includes computer equipment, trips overseas to purchase merchandise, etc. But I've never itemized my tax return before. Would I get more money back if I start a business, and then itemize my deductions rather than just taking the default deduction like I always do?

(2) If I make my online selling into an official business, will I have to pay extra business-related taxes?

Answer 1

It would be worthwhile for you to get a book, do some research and study the different types of corporate structure - sole proprietorship, LLC, or corporation. They behave differently in terms of how you handle money, the work of organizing, and how profits are encapsulated and taxed. Think about which one will serve you the best as compared to what you're doing now, which may also be fine.

I don't believe it'll cause new taxes but you're sure to run into fees on corporate structures like the above. I would expect you'd also be required to pay state sales tax on in-state sales. (can you pass that onto the buyer or would that blow a competitive edge?)

Also, you may find that as a business, you pay more for the same services than a consumer does, such as a telephone line or a checking account.

Answer 2

There are no TAX benefits of a business license. You can claim the same deductions with or without one. If you begin selling items for profit, you HAVE started a business in the eyes of the IRS.

Answer 3

Yes, you pay income tax on the profits you make. No, an LLC, etc wouldn't benefit you, it's still a sole proprietorship. You get the resale certificate from your state. It means you don't pay sales tax.