Taxes Stuff?

Question

I live in Illinois. I want to buy products from drop shippers and wholesalers, but first I needed to get my sales tax ID. Before I could get my sales tax ID, I needed an EIN number. I got the EIN and then I got my IBT (Illinois business tax number/tax ID) but I will never have employees. Recently I got a letter from the IRS telling me how I should pay my taxes and when I should pay. Yet these directions are purely alien to me. Obviously, I know nothing of taxes and I do not really know what to ask here, but: if I have no employees and if I use my tax ID to buy from legitimate wholesalers and then sell those items on eBay, how should I pay my taxes? How much do I need to make to pay the IRS, more than 20,000 a year? Do I need to fill out a tax form every time I sell an item?

Answer 1

I agree, you just need a tax accountant. Don't worry about their fee, it is not much, and they save you tons of money. I use one, the laws are not onl.y complex, they change every year.

Most small business owners use and outside account. Ask some of your friends who they use. I personally like to use one who is like yourself, a small business owner working independantly, instead of a huge firm.

Answer 2

James,

I can answer the federal tax question, however, each state has its own tax rules and I'm not familiar with Illinoise tax rules. I'm guessing your business is an LLC and not an S-corp or regular corporation. If it is a single member LLC, then read below. And no, you do not have to fill out a form every time you sell an item, you may have to make Fed and state quarterly tax payments though, depending on how much you make.

The feds will interpret your buying and selling activities (with the intent to make a profit) as a business activity rather than a hobby. It will be considered self employment and will be taxed as such. On your personal income taxes, you will fill out a form "Schedule C," which is for profit and loss of self-empoyment.

Part 1 of this form is where you would enter your total sales (gross sales), minus returns and allowances, and minus your cost of goods sold (inventory). Lets's say $7500.00

*****The cost of goods sold (COGS) example for you would probably look like this:
==> Beginning Inventory $ 0.00 (just starting business, hence no starting inventory)
==> Add: Purchases of goods (include shipping costs) $3500.00
==> Subtract: The Cost of your inventory at end of your tax year. $500.00

==> 0 + 3500 - 500 = 3000. This would mean that you sold goods that cost YOU $3000

==> Here is your gross income calculation: 7500 - 3000 = 4500.00

Part 2 of Schedule C is for your expenses: The fees you paid to acquire the business license fall under taxes and licensces (T&L) $75.00, office expenses like pens and paper $50.00, travel expenses to acquire your goods for resale, say 500 miles (I think .485 cents per mile for 2007, or you can use actual expenses. Save receipts and document mileage) 500 miles X .485 = $242.50. Utilities can get tricky, because I assume you work from home, so the electricity you use powers your computer and your personal home while you work, let's say 50.00. There are other expenses, but you will probably use these the majority of the time.

Here's the Net Income calculation:

Gross Sales: 7,500
COGS: (3,000)
Gross income: 4,500
Taxes & Licenses: (75)
Office: (50)
Travel: (242.50)
Utilities: (50)
--------------
Net income: $ 4,082.50

Now, you'll have to pay self employment taxes on this, meaning the social security and medicare (FICA.)
Multiply the 4,082.50 by .9235. (1 - .9235 = .0765) your FICA contribution.
This equals $3,770.19
Multiply 3,770.19 by 15.3%. This equals $577.00 (rounding) or the self employment tax tax you would owe.

****The 15.3% is (7.65 + 7.65 is you and your employers matching FICA) to the government.

****Of this amount, half, or 288.00 is deductible on page 1 of your tax return.

****For an amount like this, you wouldn't have to make any estimated tax payments either.

Hope this helps. Any questions just email me.

Answer 3

You need to find a CPA or EA in your area soon before you do some real damage.

If this is your only income, has soon as you make over $400 a year, you must file a return and pay Federal income taxes. I am not sure of the Illinois requirements.

The state of Illinois will require you to collect sales taxes from your customers in Illinois. This will require a sales tax return to be filed (monthly, quarterly or annually depending on how they set you up).

You should also be making quarterly estimated income tax payments to the IRS and the state.

Like I said, find a local CPA or EA before you dig a hole that you can not get out of.

Answer 4

You will pay income taxes on your net profits from your business. In addition, your net profit is subject to Social Security and Medicare taxes of up to 15.3%. The IRS will want you to file estimated taxes quarterly, and you should do this if your total tax liability is going to be over $1,000.

You need to keep very good records of your purchases, sales, and expenses.

I assume you are going to operate as a Sole Proprietor. A good place to start is the instructions to Schedule C.

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

The website irs.gov also has a lot of good information for small business owners. You may want to check it out. Much of it is written more clearly than the regular IRS publications.

Answer 5

Yes you need to fill out a form everytime, but according to how much you pay will have a lot to do with the frequency of payments to the IRS. Being self-employed is tough because you pay the employee and employers part of the taxes. You need to be more specific in the details. Talk to the IRS and you can give him your estimated gross income and work out a filing frequency. Make sure you keep track of ALL of your expenses. It will lower your tax liability.

Answer 6

Don't ask here. Find a tax accountant and talk to them. Promptly. You'll have to file corporate income tax, and perhaps other taxes, depending on your business structure.

Answer 7

retain a bookkeeper, cpa, or accountant. let them take care of your books.