02/19/2019 at 1:14 am #57262
So, backstory: I’m 21, a full time student, and am flipping full time from now until May.
Is there a type of form that I need to send to the state of Illinois saying I’m self employed? I don’t think I’ll break $20,000 in profit this year (closing up Ebay in May, Amazon will still be open) I’ve heard of a schedule c and see the worksheet on godaddy, but is there more than that?
Right now go daddy says my Q1 taxes are about $200. Is this real? Thats like a quarter of what I made. How do I pay this?
02/19/2019 at 8:43 am #57270
- Location: Georgia
You said you don’t think you’ll break $20,00 profit this year but then you say $200 is a quarter of what you made. Did you mean to say that you don’t think you’ll break $20K in sales? Gross sales are very different than profit. Be sure you are accounting for all of your expenses: car mileage, home office, all equipment and supplies used in your business, even your phone bill might be deductible.
Schedule C is the only schedule I complete for my businesses.
I’m afraid that since this is your full time income, the government expects you to be paying self employment taxes, which are generally higher because you don’t have an outside employer who is paying part of your taxes for you. It’s why most self employed persons pay their taxes quarterly, to take out some of the sting of having one large end of year tax bill. Unfortunately, a lot of new sellers learn this the hard way, when they file taxes for the first time following a year of self employment.
I believe there is at least one episode from the last year or so where Jay discussed taxes with a CPA experienced in online sales. Taxes have also been covered to some extent in the forums so do some searches here to help get you started.0
02/20/2019 at 6:54 am #57329
I have the same question as Julie.. are there some zeros that were left off or added to your numbers in error? If you made $20,000 in “Profit as in NET PROFIT”, you will owe a whole lot more in taxes than $200, try thousands unless you itemize your expenses and those will need to be a lot to lower taxes on $20,000 net.
If you made $20K GROSS all sales plus shipping and any other income, then that number can be whittled down, again, by uses your expenses [deductions] and also the new tax laws.
BUT.. BUT… I see you stated you are closing down Ebay in May, then if you are only having to do your taxes for last year and will not be doing this going forward, maybe just get someone to do your taxes for you this year, provide what numbers you have and let them report it back to you and be done with it. BUT AGAIN if you are going forward with anything as a business, then as Jay says, get yourself set up as a business as far as your infrastructure goes.
A big suggestion I would offer is not co-mingle your personal money and or checking accounts. If you are going forward as a business go to your bank and open up a business checking account. Your branch manager will tell you everything you need, but that may incluce a county business license, a Federal ID number and a few bank forms. You will get business checks, a business credit card. Then set PayPal to transfer all your Ebay Amazon earnings into your reg. business account every few weeks. At years end, your banking statements for your business account will only show transaction in and out for your business only. And my bank allows me to classify all transaction directly in their online web site so statements and of course your bznz. credit card statements will only show income [deposits] and out go [expenses] just for your business.
Then from there use GoDaddy will aslo pull everything from Ebay-PayPal and your bank accounts also to track all your business transactions and you can categorize them from there. at years end you just print out reports to give to your accountant.
Hope this adds to everything Jay has already said, but if this was just a year or two’s effort and you have no intentions of going forward as business in the years to come, maybe everything is over kill and just let a local accountant help you out for filing the 2018 tax year and then move on.
Mike at MDC Galleries and Fine Art in Atlanta0
02/19/2019 at 9:22 am #57272
Lauren, I will second what Julie B said.
No, you don’t have to do anything to declare you are self employed (though I would check with your state on what you need to do to collect and remit sales tax for your state).
A couple of clarifications: the $20k line for when PayPal sends out a 1099 is based on total collections (what you received in your PayPal for the item and shipping).
You would only pay taxes on your net profit. So the total money you received LESS the cost of the items, your shipping, cost, your fees, any supplies, etc.
My advice? If you are still hooked up as a student, go talk to your accounting department professors. usually the accounting students do free tax returns for people as part of their class schedule (I know I did). You can probably get free advice there.1+
02/19/2019 at 9:25 am #57273
- Location: Central NJ
There is an earnings limit of $10,400 under which you don’t have to pay taxes, but do have to pay self-employment. Earning over that amount does require you to pay tax, but at a pretty low rate. I found this article that skims over the basics:
I wonder if paying college tuition will have some tax benefit as well. I know there are some benefits for a parent helping to pay their son’s or daughter’s tuition, but I don’t know the details (yet).0
02/19/2019 at 9:35 am #57275
- Location: Virginia
I’ll try to answer, but please seek financial advice from a local accountant if you’re worried. I’m just a guy on the internet. And I apologize if you know a lot of this stuff already. I know all this was new to us when we first started a business. (This wall of text is in honor of Mike from Atlanta 🙂
When a person has a job, they are usually W-2 employees. This means that each paycheck, the employer withholds taxes for contributions to Medicare, Social Security, and yearly taxes. The benefit of being a W-2 employee is that the employer pays for half the Medicare and Social Security tax. So at tax time, most people get refunds because they’ve had more taxes taken out all year than they owe.
When a person is self-employed, no one is taking care of your taxes. So if you make $100 on eBay today, you get the full $100 in your account, but you are still liable for the taxes on it. State taxes (if applicable in your state), Federal taxes, and Self-employment taxes. This is why people pay quarterly taxes so they dont get a huge “surprise” tax bill at the end of the year. Q. “Why do I have to pay $10k in taxes?” A. “Because you didn’t pay any taxes all year.” Surprise.
The real killer is Self-Employment taxes which is 15.3%
Since you work for yourself, you pay the entire amount. There’s no employer to pay half of it for you. Good news is that this is how you’ll get Social Security and Medicare when you’re of retirement age. (Don’t let people tell you its a boondoggle. Theres always room for reform but these programs save peoples lives.)
The magic of being self-employed are Expenses. The US tax system is heavily skewed to benefit people that own businesses and work for themselves if they set things up properly. A business can write off almost anything. This is one reason why you hear about Billionaire President Donald Trump not paying taxes for a decade, or Amazon not paying taxes on 5-billion in yearly revenue. God or bad, the idea is that any money you spend on your business is good for the economy so its not seen as profit. Whereas the employee who spends $ on fuel to get to work or supplies for her job don’t reap the tax benefits beyond the standard deduction.
So at the end of 2019, Paypal will send you a 1099 for your total revenue you made on eBay. This includes all the money people paid you to ship their items. Even though you immediately bought postage, Paypal and the government see this as income. So if you sold 17k of items, you might have also made $4k in shipping income for a total of $21k.
Let’s say Paypal sends you a 1099 of $100k in total revenue. With all state/federal taxes, the tax bill would be something $30k+! You’re liable for the taxes on the full $100k…until you do your expenses on your schedule c worksheet that Godaddy makes it easy to keep track of.
–expense all the postage you paid for
–expense the cost of all the inventory sold
–expense shipping supplies
–expense all the mileage on your car when you go scavenging or post office or anything work related
–expense your office space
–expense the camera, computer, and phone you buy to run your business
–Plus lots of other expenses that a good accountant can find
After all these expenses, your net income might be a much smaller percentage of $100k.
Plus with the new tax law, self-employed people and businesses get another 20% taken off their net income if they use a “pass through” entity. You’d just need to be a Sole Proprietorship:
“A sole proprietorship is easy to form and gives you complete control of your business. You’re automatically considered to be a sole proprietorship if you do business activities but don’t register as any other kind of business. ”
Especially when your business is small (under $20k), you can probably do all this yourself. Maybe get the help of someone who does their own taxes. But many of us encourage any eBay seller who plans to grow to find a local accountant to help them set all this stuff up. Not someone who works at H&R Block, but a local tax accountant that helps local businesses. Once you set up your system, taxes are actually very easy. He/she can give you a realistic amount of quarterly taxes you should pay. Godaddy always overestimates because it’s not taking into account your expenses.
–Plan to expense everything so learn what’s an expense
–Do your numbers each month on Godaddy so it doesnt become a mountain of pain at the end of the year.
–Get an accountant is any of this is remotely confusing to help set up an accounting system
–Have fun being a business owner2+
02/19/2019 at 10:04 am #57280
Well done Jay!0
02/20/2019 at 6:36 am #57328
As T-Satt says.. Well Done Jay and welcome to the Weeds! The devil is in the details and the answers lay in the weeds. The God Send to Salvation is in the “details” and the Angel of Mercy is being able to explain it all to someone else, thus “The Infamous Wall of Text”. … WELL DONE!
I have been just to busy with everything to be able to do much replying here on SL but will be back at creating some “walls” later this year I am sure.
Mike at MDCGFA in Atl.0
02/19/2019 at 1:34 pm #57298
- Location: Massachusetts
Bravo! Thank you!
Best regards, Suzy.0
02/20/2019 at 5:17 am #57326
- Location: Leicester
The UK system can be done online. For some reason this year’s form was substantially easier (usually there’s some question that stumps me, or I try to enter a zero in something and find that it won’t accept a null). Took 5 minutes.0
02/20/2019 at 9:53 am #57339
- Location: Virginia
So if Paypal says you made £50k on eBay in 2018, do you pay taxes on the whole amount?
–Or does their online system allow you to enter all the deductions of running the business?
–How long does it take you to enter your tax info online?
The US system of deductions seems too complicated to do it online? It’s much easier if you’re an employee and only have a salary with no deductions.0
02/20/2019 at 12:44 pm #57360
Jay.. There is an easier way.. Write down what you make. Individual, corporation, whatever, then send in 10% of it. Called the Flat Tax system then their is the Neil Boortz “Fair Tax” where the tax is built into the type of or category of item you purchase and it is added to your purchase cost. The luxury items are bought by the wealthy and they would pay more than someone not buying a yacht or an expensive Tiffany diamond bracelet.
But simple is not something Washington understands. Man how easy would 10% straight across the board be for everybody. Make a buck send in a dime, make $50k send in $5,000, make $100,000 send in $10,000 and on the corp level make 1,2 billion then send in whatever 10% of that is???
But we will never see anything like that, at least not in my life time. Oh, well
mike at MDCGFA2+
02/20/2019 at 12:55 pm #57361
- Location: Georgia
Been seeing articles online about the millions of dollars tax software companies spend lobbying the US government each year. Obviously it’s in their interest to keep US taxes complicated. Just Google some form of the phrase Tax Software Lobbying and you’ll find tons of articles. It’s enough to make me want to go back to completing my taxes using nothing but a pencil, calculator, a hardcopy of the IRS tax instruction booklet (that they used to mail to every home) and loads of scrap paper. I did that up until 5 years ago.1+
02/20/2019 at 10:53 pm #57412
Thanks all for the responses! I really appreciate the help
Just to clarify, When I said $200, I meant that’s what GoDaddy is saying my quarterly taxes are so far this year.0
02/21/2019 at 2:10 am #57414
- Location: Washington State
Mike I wholeheartedly agree, it could be just that easy.0
02/21/2019 at 2:42 am #57415
So Cal JoeParticipant
As others have advised, you should find someone qualified to look over your situation, before you make any moves. Depending on the amount of your sales, you may not be required to declare them.
Paypal has a record of your sales to date (including shipping). Ebay and I’m sure Amazon do as well.
Not paying you quarterly taxes on time is no big deal. Oh, there may be penalties, but they are relatively small. I wouldn’t be in a great rush to send them in, until you figure things out.
T-Satt has a great suggestion of speaking to someone in the accounting department at school.
Good Luck with it.0
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