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Member Workshop: eBay and The Tax Man - April 5th
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Last Post Apr 5, 2006 11:02 AM by: deirdre@ebay.com
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deirdre@ebay.com
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Member Workshop: eBay and The Tax Man - April 5th

Mar 30, 2006 9:06 AM
Topic: Member Workshop: eBay and The Tax Man

Host: dkennedycpa
Date: Wednesday 04/05
Time: 10:00 to 11:00 PT
Location: Workshop Board

Description: What taxes do I need to pay for my eBay Business? That is the Number 1 question posed by many eBay sellers. Please join best-selling author and CPA Diane Kennedy as she explains how to organize your business to help lessen the tax impact. She'll also review other business taxes that may be relevant to your eBay business.

Cheers,

Deirdre
eBay Community Development
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:30 PM
Hello. My name is Diane Kennedy. I’ve been a CPA and Tax Strategist for over 25 years. My specialty is working with small business owners and real estate investors. My tax education company, Tax Loopholes, teaches people through books like “Tax Loopholes for eBay Sellers”, tapes and seminars on how to take advantage of the legal tax loopholes available to everyone. First though, a few things you’ll need to keep in mind: Laws and practices vary from state to state and if tax, accounting, legal and other specific expert advise is required, the services of a professional should be obtained.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:32 PM
If you have a question regarding the topics discussed today we’re glad to take them during the workshop. If you have a question regarding other related accounting, financial or tax issues, we’ll take them as well, time permitting.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:32 PM
The #1 question for eBay sellers at my eBay Live! Workshops is always “Do I have to pay taxes?” The answer is “yes.” Now that that’s out of the way, let’s discuss the type of taxes you’ll have to pay and how to legally pay the least amount of taxes possible

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:32 PM
There are three types of taxes that you will have to pay: (1) income taxes (federal and state), (2) sales and use taxes at the federal, state and municipal level; and (3) payroll taxes.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:33 PM
Let’s start with income tax. The income tax is calculated based on your tax rate applied to your taxable income. The US tax rate is a graduated tax rate. The first bracket is zero, then 10%, next bracket is 15% etc.. Your highest bracket is called your marginal tax rate. The next dollar you make is taxed at that rate.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:33 PM
Taxable income is calculated as:

Sales Income (also called gross profit)
Less: Cost of sales (eBay fees, shipping, and the like)
Less: Basis (cost of goods sold)
Less: General Expenses
Equals: Taxable Income

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:33 PM
If you buy and sell one item in a year, the inventory accounting would not be important. At the end of the year, you have no inventory left over – so it’s not important. However, if you buy and sell a lot of items in a year, the inventory calculation is important.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:34 PM
Generally, when an eBay seller buys and sells in large quantity, it can be very tempting to just lump the basis or cost of goods sold together. The problem is that the ending inventory – that is the inventory that you end the year with – is not a tax deduction. It’s actually an asset, just like your checking account balance and furniture and equipment you use in your business.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:34 PM
There are two schools of thought on how to value that inventory for tax purposes. One, the more proper and sophisticated method, is to allocate basis for each item that is sold. This method will give you the best value and best indication of how much money you are really making on a given product or product line. A lot of eBay sellers use a spreadsheet program such as Excel to keep track of the basis for the products sold. Then, as you sell a product, you make an entry in your accounting software program to reduce the inventory and show the basis of the item as additional cost of goods sold.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:34 PM
Another method, usually the fallback for beginning sellers, is to simply count the inventory that you have at year end. If you know how much you spent for products to sell throughout the year, you can just subtract out the ending inventory amount to come up with the cost of goods sold throughout the year. For example, let’s say that you have spent $36,000 throughout the year for products to sell. However, you have an ending inventory of $10,000. That means your actual cost of goods sold is $26,000 ($36,000 minus $10,000).

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:34 PM
Let’s take this second method of accounting for inventory into the 2nd year. Assume that in year 2, you buy $35,000 worth of product to sell and have an ending inventory this year of $5,000. Your cost of goods for this year would be calculated as:

Beginning inventory $10,000 (last year’s ending)
Purchased 35,000
Less: New Ending (5,000)

Total Cost of Goods: $40,000

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:35 PM
Once you’ve figured out your true cost of goods, cost of sales, and your general expenses, you have the total taxable income.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:35 PM
The next issue that might confront the eBay seller is something called “nexus.” Nexus is a fancy term that mans “where your business is located.” There are two main reasons where you need to know your nexus: (1) state income tax and (2) sales and use tax.

Diane Kennedy, CPA
www.taxloopholes.com
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dkennedycpa
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Member Workshop: eBay and The Tax Man - April 5th

Apr 4, 2006 1:35 PM
If you live in Chicago, and your eBay business was incorporated in Illinois, your business nexus is Illinois. That means you’ll be subject to Illinois tax law when it comes to your eBay sales. That means you’ll have to charge other IL residents state sales tax and collect and remit that tax to the local government. You’ll also have to pay IL state income tax.

Diane Kennedy, CPA
www.taxloopholes.com
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