How do I pay taxes on items I sell on Ebay?

Question

I started about six months ago.. Currently, I'm selling about $10,000 monthly.. I always buy $4000 worth of items and profit about $4-5,000 every month.
How do I know how taxes to pay or whatever?
I'm only seventeen, my uncle is a lawyer and he told me I have to pay taxes but I'm completely lost.

Answer 1

For that kind of cash, you'll want to hire an accountant come tax time.

Keep all your receipts, as you should only have to pay taxes on the profit - the money spent can be deducted as a business expense (and so can your internet usage - probably even your computer since it's all ebay. Check with a certified accountant.)

But, if you are making that much, your uncle is correct - you will have to pay taxes on the profit just as you would any other income.

Answer 2

You need the help of an accountant.

Basically your profit (taxable income) is reported on your income tax return.

Your profit is probabbly much less than you think (at least as far as the IRS is concerned). There are many things that would be deducted from your profit that you may not think about. Your internet connection, vehicle expenses(if you pick up and deliver merchandise), shipping expenses, etc.

Your computer equipment can also be deducted (but probably only a little a year for 5 years or so, its called depreciation).

A tax attorney or accountant would be the best person to consult to help you set up your financial records so you can properly prepare your tax returns for your business. As a single person with a reportable income of 40-50,000/year, you'll have a pretty big tax bill. Make sure you save at least 25-30% of your profit to pay your taxes in April. As a self-employed person, you'll probably need to make quarterly tax payments (every three months).

Good luck with your business.

Answer 3

1. Your income will be self-employment income. On your tax return it is to be reported on Schedule C of Form 1040.

2. You must keep track of your gross sales and expenses to figure out net profit.

3. Get a business license from your city/county. The fee ranges from $10 to $100 depending upon your city/county.

4. Open a bank account exclusively for your business activity. This way you can easily keep your personal and business expenses separate.

4. Since you are buying and selling goods, you must be having some office space. Mark that space for exclusive use of your business. That way you can deduct a part of your home rent as business expenses.

5. Right now you don't have sales tax number. Normally, there is a limit of total value of sales after which you must register with the sales tax department. Then you need to charge sales tax to clients in your state.

6. It is good that you don't have an employee, otherwise you would need Employee Identification Number (EIN) number.

7. You need to make quarterly Estimated Tax payments. Your income (gross sales minus expenses) is subject to 15.3% self-employment tax. Then you will have to pay Federal tax and may be State tax.
If this is your first year of business, then even if your estimated tax payments are far below required, there won't be any penalty charged.

8. Make sure to file your tax return before April 15, 2008.

Answer 4

There are two issues here, income tax and sales tax.

For sales tax, you need to register with your state if they have a sales tax, and collect it from anyone who buys from you that lives in your state. You'll send the tax in to the state - they'll tell you how, and how often you need to send it. If you sell to people outside of your state, you won't collect tax from those people, and if you live in one of the few states without a sales tax, you won't have to worry about it.

For income tax, it would be a good idea to talk to a CPA to find out what kind of records you need to keep, and what expenses you can deduct. You might want to have them prepare your tax return, at least for the first year. You'll owe about 15% of your net for self-employment tax (for social security and medicare) in addition to income taxes - you'll send that to the IRS quarterly, then file a return at the end of the year. If you are averaging around $4500 a month, your federal income tax for the year will be around $5000-$6000 for this year since you won't have a full year in, and more next year if you make this much every month for all year. The next quarterly payment is due in two weeks, so don't let this go - you could have a huge tax bill at the end of the year, plus penalties for waiting until the end, if you don't get some money deposited quickly. Your lawyer uncle might be able to steer you to a CPA that he knows.

Depending on where you live, you might also owe state and/or local income taxes.

And I second the reply that asks what you're selling to do that well - I'm curious too.

Good luck in continuing with your business.

Answer 5

If you're just selling your old stuff, for less than you paid for it originally, you don't report it as income and don't pay tax on it. If you're trying to make a profit off of ebay by buying things for resale, any profit is taxable income. That's profit though, not sales - you'd subtract any expenses like cost to buy the items, ebay fees, packing and shipping expenses..

Answer 6

Do you have a company set up? A Limited Liability Corporation? Or are you just selling this stuff out of your home as an individual proprietorship? How taxes work differs for each scenario.

You have to pay taxes twice if you're a company, but not if you're a LLC, etc, etc, etc.

Anyway, I'm curious what exactly you're selling to make so much money each month! Please, do tell. I am actually really interested to know.

Answer 7

personal and business separate. just tally up your revenue minus expenses= profit. give a third to the govt. sales tax is only in your state.

Answer 8

You don't sound too lost to me if you're 17 and have such a great business going.