Taxing Your eBay Profits

As a small business person-slash-advice columnist I dread the first quarter of the new year. Not because in my mind my own business fortunes start at zero again every January or because I have already dismissed every New Year's resolution I made when the clock rang out the New Year.

No, the reason I dread the first quarter of the new year is that my email box floods with questions about business taxes and the IRS, my two least favorite subjects on earth. It's not that I am opposed to paying my fair share of business taxes. It's that I consider the IRS to be a little like Beetlejuice, the movie demon who appeared only after his name was called three times in a row. My fear is if I write too many IRS columns their dark agents may appear on my doorstep, ready to drag me away to an uncertain fate.

Oh well, one must do his duty no matter the consequences, so here we go?.

Q: I am starting a small retail business. While talking to a potential supplier last week he asked for my EIN number. I had no idea what he was talking about, so I told him I would have to get back with him because I didn't have the number handy. What is an EIN number and why do I need one? -- Robert P.

A: Robert, do you remember the old Johnny Rivers song "Secret Agent Man?" There was a line that said, "They're giving you a number and taking away your name." An EIN isn't as cool as a secret agent number, but it works much the same way when it comes to your business' relationship with the IRS. Instead of identifying your business by name, the IRS identifies your business by EIN.

EIN stands for Employer Identification Number and is also known as a federal tax ID number. The EIN is a nine-digit number that the IRS assigns to businesses and is used to identify taxpayers that are required to file various business tax returns.

Does your business need an EIN? According to the IRS the answer is yes if:

· Your business has employees

· Your business is a corporation or partnership

· You file returns for Employment, Excise, or Alcohol, Tobacco and Firearms tax

· You withhold taxes on income (other than wages) paid to a non-resident alien.

· Your business has a Keogh plan

· Your business involves trust, estate, real estate mortgage investment conduits, non-profit, farmers' cooperatives, or plan administrators.

Applying for an EIN is a relatively painless task. You can apply online at the IRS website (irs.gov), apply by mail or telephone, or if you do business in a state that participates in the Federal Employer Identification Number project you can apply through you local IRS office (sorry, Alabama is not one of them).

You will need an EIN number prior to filing business returns with the IRS, so make sure you give yourself plenty of time to obtain one. For more information on EINs and your business, consult your accountant.

And while we're on the subject ?

Q: I made extra money selling things on eBay last year. These were items I picked up at yardsales mostly. My husband says I am responsible for paying income tax on the money I made, but I disagree. This is just my hobby, not a business. What do you think? -- Gladys A.

A: With so many people selling on eBay these days this is a question I get quite a bit. In fact, I have plans for a future "eBay and taxes" column, but I believe your question is more, "is it a hobby or is it a business?"

Again, I went to the horse's mouth (at least I think it was the mouth) for the answer. According to the IRS there are a number of factors that help determine if your hobby can be considered a business and thereby make you susceptible to the IRS tax rules governing business.

Do you carry on the activity in a business-like manner? If you conduct your eBay activities like a business, i.e. you keep business records, track your profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is considered a business.

If you put considerable time and effort into your venture, the IRS may contend that you do so for profit and not fun. It seems the folks at the IRS don't believe in doing things strictly for pleasure. My guess is, neither do you. If you weren't making money selling on eBay I doubt you'd be bothering getting up at 4am to hit all those yardsales. Then again, maybe you would?

If you depend on income from your eBay activities for your livelihood, it's a business, not a hobby.

There are a number of other factors the IRS considers to determine if a hobby is really a business, but in your case I think that covers the basics.

For detailed answers to any tax question you should consult a qualified accountant or tax attorney. God forbid you rely on a guy who is afraid to mumble the letters "IRS" three times in a row.

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim's latest books include "Small Business Success Secrets" and "The 30 Day Blueprint For Success!" Related Links: http://www.smallbusinessqa.com http://www.dropshipwholesale.net

---

eBay Auction Bidding Strategies--Overcoming the most Frustrating Situation on eBay

The Problem...It's happened to the best of us.You've been watching... Read More

How to Market with Niche Auction Sites

Online auctions are big business. But they can be big... Read More

From Ebay Zero to Power-Selling Hero: How To Learn New Tricks Without Spending

The Internet is the fastest-changing marketplace on earth. Million-dollar ideas... Read More

Are You an Ebay Shopper?

As I write this article, I am keeping an eye... Read More

Selling on eBay? Heres a Success Tip for Your Online Auctions

Are you planning to sell on eBay? Or have you... Read More

Attract eBay Buyers Like Crazy!

As an ebay(TM) seller it happens very often (too often)... Read More

12 Tips To Make Your eBay Business More Profitable

Sometimes it's the simple things that can make your eBay... Read More

So What Are YOU Going To Do About eBays Fee Increases?

Unless you have been hiding under a rock, I am... Read More

Tips on How to Profit from eBay Buy It Now Auction Listings

eBay is an online auction site so it stands to... Read More

Authentic or Fake?

1. Admit It: Old business models are no longer working.... Read More

eBay Gold

Internet auctions are relatively new having been around since the... Read More

Increase your eBay Profits the Easy Way

Sometimes the simplest things can boost the number of visitors... Read More

Dropship Your Way to Success

Many people know they would like to start an Internet... Read More

The Top Sellers On eBay & What We Can Learn From Them

A fascinating eBay case study is the number one seller... Read More

Drop Shipping Secrets and Sources Revealed

Unfortunately for those just breaking into the wholesaling business, drop-shipping... Read More

Taxing eBay Part Deux

When my column on paying income tax on eBay profits... Read More

City Police Auctions of Personal Property and Autos

About City Police Departments AuctionsThe City Police Departments handle and... Read More

Bananas - Your Source of eBay Packing Materials!

This is the most boring stage of the process and... Read More

Starting an eBay Home Business

Do I need to explain what eBay is?If 'Yes', where... Read More

How To Sell On Ebay: The Money Is In The Back-End

Many people who sell on Ebay completely neglect the follow-up... Read More

Online Auctions: The New Way of Shopping for Mauritians

Since their introduction several years ago, online auctions, such as... Read More

Make Money Online: Learn To Sell On Ebay

The online auction site eBay is an excellent tool for... Read More

Fed Up With eBay?

For many people, their first experience of working online involves... Read More

Sell Your Items at Cost and Make a Fortune on eBay!

Like all ebay sellers I wanted to sell all of... Read More

EBay Feedback, 5 Key Things All EBayers Should Know

eBay's user feedback system is one of the site's most... Read More

Why Ebay Is The Best Place To Make Your First $1000 Online

I'd like to begin with a question ? and I'll... Read More

How To Save Franchise Fees and Set Up Your Own Ebay Drop Off Store

There has been a flood of publicity generated regarding the... Read More

How Pop-Culture Collectibles Can Increase Your Online Auction Profits

How Pop Culture collectibles can increase your Online Auction profitsWith... Read More

7 Steps to Easier EBay Shipping

If you're like me, you probably hate packing and shipping... Read More

A WIN-WIN Scenario On eBay For Buyer/Sellers: Tips For Hunting Want It Now Postings

"Ask And You Shall Receive" Policy Works!You're one-of-a-kind baby clothes... Read More

The Secret To Real eBay Success

Q. I hear so much about people who started selling... Read More

Mr. Rich vs. Mr. Job: How to Start a Dropship Business on eBay

Mr. Asset vs. Mr. Job....Discover the Secret Formula of the... Read More

Just The Ticket - How To Make Hundreds Per Day As A Ticket Broker On eBay!

It should be simple - your favourite team/band/theatre play is... Read More