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

---

5 Secrets To Make A Killing on EBay

Secret #1: Find a 'real' wholesale and drop ship companyDo... Read More

How to Survive the Jungles of Ebay Selling

Come with me, we are going to take a safari... Read More

Traditional Marketing Techniques for eBay Auction Ads

Ya know, I sort of giggle when I look at... Read More

eBay - Tapping Into The Japanese Collector Market

If you owned a skateboard shop in your local mall... Read More

The International Affiliate Program of EBay

eBay trades in more than 33 international countries with over... Read More

Four Huge Mistakes Ebay Sellers Make (Even Some Moderately Successful Ones)

No matter how many times I see it happening, I'mconstantly... Read More

E-bay Auctions: Sell Better, Spend Less Tip #1

Just about everyone alive today has heard of E Bay.com,... Read More

eBay Bargain Hunting - Spell Your Way To Success!

Have you ever wondered how identical items can fetch such... Read More

Make Money on eBay the EASY way!

Probably just like you, I had an overwhelming desire to... Read More

Negating Negative Feedback on eBay

Taking some pride in my one hundred percent positive feedback... Read More

The Benefits of Buying and Selling Locally

Shop at a flea market in Oaxaca, Mexico. Trade with... Read More

Instructions on How to Put Picture on Ebay

Like many folks, you have heard of online auctions. Heck,... Read More

How To Increase eBay Profits

Some sell on eBay to clean out their garage or... Read More

Royal Memorabilia ? An eBay Prince or Pauper?

There has always been a fascination with royalty and as... Read More

Why 95% of All eBay Sellers Fail

eBay is now the 8th most visited site on the... Read More

From Ebay Zero to Power-Selling Hero: The Devil Is In The Details

If you've ever heard the expression "the devil is in... Read More

Auction Image Hosting for Ebay Auctions: Free Single Most Recommended Tip

It is a well known fact that the more pictures... Read More

Photos on my eBay Auctions: How Do I Add Them?

On another forum I'm involved with, someone's asked a great... Read More

eBay - Profiting With Books By Janette Oke

Janette Oke is a Christian writer whose books about life,... 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

How To Profit Using eBays Saved Search Feature

Did you know that eBay will help you locate products... Read More

Effective Online Car Sales on Ebay Motors

Remember back when selling online was a new experience? Dealers... Read More

How Do You Find A Reliable Dropshipping Source?

A Dropshipper is someone who will anonymously send the goods... Read More

How Drop Shipping Works

One of the most frequently asked questions on the Net... Read More

Selling through Auction Marketplaces

Consumers are increasingly feeling more comfortable in buying products through... Read More

The Down Side Of Using Dropshippers In The Ebay Auction Arena!

Ok, let me just say right up front that I... Read More

Why Its a BAD Idea To Promote Hot Selling Products on eBay

Do a quick search on Google, Yahoo, or your favorite... Read More

Bananas - Your Source of eBay Packing Materials!

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

How To Find Tons of Hot Items Selling On EBay ...In Less Than 10 Minutes

There are many ways to start a home business online,... Read More

Online Auction Fraud

eBay sales may have grown 51% last year over the... Read More

When is Wholesale Really Wholesale

You've finally found the wholesale source for the high demand... Read More

Taking Paypal on eBay

Accepting Paypal as a payment method might increase your selling... Read More

How to Sell Your Crafts on eBay

Artists, craftspeople and photographers are successfully selling their wares everyday... Read More