Three Tax Tips for Your New Online Selling Business
If you've joined the millions of people buying and selling goods online, it's important to understand the changes to your taxes that come with this new venture. And while it may not be fun to think about taxes early in the year, doing so can save you time and frustration later.
Keeping Inventory
If your small home business involves keeping any kind of inventory, you'll need to maintain some records of its value. This is because the Schedule C form that businesses complete to report their profits has a section for valuing the cost of all goods you have sold over the year.
The simplest means of doing this is to go through your inventory, no matter its size, on January 1 and record the value of what's available for sale. Then, on December 31 you repeat the process. Your records of what you bought during the year and what was sold will fill in the rest of the information you'll need for the inventory section of the basic Schedule C.
New Deductions
There are several new tax deductions your business will likely qualify to take. But there are also some things that may not be as easily deducted as you think.
Home Office Deduction. The deduction for business use of your home is often misunderstood. On the one hand, it's been made simpler than ever with a standard dollar amount per square foot of business space. On the other hand, many small business owners don't understand that the space must be exclusively used for business purposes in order to qualify. Claiming shared spaces in your home may be a red flag for the IRS.
Utility Use. In addition to home office space, you may also be able to deduct a portion of some home expenses. As an online seller or buyer, you're probably using internet, cellular phones or land lines. You likely can deduct a portion of the monthly expenses of such utilities or devices. Calculate the percentage of business use and divide that percent by the total monthly bill. Be sure to use consistent percentages from year to year unless something significant changes.
Fees
Be sure to include selling fees as business expenses, even if they are deducted from sales automatically by the service you use. The correct method of accounting for these fees is to declare your total selling price as income and then include the fees deducted as expenses. Otherwise, you may under-report your income.
While it can be difficult to adjust to the new record-keeping and accounting requirements of operating as a small online home business, the benefits of working for yourself can make it all worthwhile. And one great way to find these benefits is to learn about and apply tax planning tips like these. For assistance, talk to a professional like Jeff Baker & Associates, PS.
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