End of Year Tax Tips for eBay Sellers
December 19th, 2006 by Skip McGrath
If you run a profitable eBay business there are a few things you can do this week to cut your taxes.
First of all let me point out that I am NOT certified in anything when it comes to taxes. I am not a tax attorney, CPA and I have never even been to a tax preparation course. I do have a lot of experience as a small business owner and you learn these things –mostly by listening to your CPA. Most of these are common sense, but nevertheless I am required by law to tell you to check with a licensed tax advisor.
You pay taxes on your profits. You get your profits by taking all of your sales and subtracting your expenses and the cost of the goods you sold. So end of year rule number one is: Prepay any expenses you can. For example, eBay will not invoice you for fees until the first week of January, but if you owe eBay fees you can go into your eBay account (via your My eBay page) and prepay your fees. If you have the cash available you can also pay any outstanding invoices you have received even if they are not due yet.
You could also purchase supplies such as office supplies, shipping supplies and so on before the end of the month. Note, if you purchase goods for resale, that will build up your inventory at the end of the year which is generally not a good thing for tax purposes (the explanation why needs more space than I have here, so ask your CPA about that).
Purchase office equipment. Now (before December 31st) is the time to buy that computer, digital camera or new printed. This way you can take the expense or depreciation this tax year.
Write off bad inventory. If you have inventory that is damaged, won’t sell or is somehow useless, write it off now as it will cost you money at tax time if it is still on the books. Another choice is to donate it to some legitimate charity and take the tax deduction.
Contribute to any tax advantaged retirement plan you have such as an IRA or Keogh Plan. This will reduce your taxable income.
If you see a trend in this advice it is that you always want to push tax burdens further out. Any financial advisor will usually tell you that a tax delayed is a tax saved. You might think well if I prepay expenses now I will pay less taxes this year, but next will just have to pay them next year. Yes –but remember, you don’t yet know how next year will go, you get the use of the money in the meantime and if you are super profitable next year you can then make a larger tax saving contribution to your retirement plan.
You will notice that I mentioned checking with your CPA. If you earn more than about $10,000 a year from your eBay business or any small business, then GET A CPA !!! (Sorry for yelling). Yes they charge more than H&R Block. That is because they are smarter, they not only just do your taxes they can help keep your business on a solid financial footing and they will easily pay for themselves in taxes saved. I have nothing against H&R Block or any of the tax preparation companies, it is just they are not the same as having a CPA and can not provide the same level of service.
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Posted: December 19th, 2006 under eBay Business.