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Hello All!
I’m new to the forum but have been on eBay for many years. My name is Chris and I live about 20 minutes north of Boston. I sell primarily antiques and collectibles, including glass insulators, radios, phonographs, cameras, coin-operated antiques and jukeboxes. I started selling on eBay at 13 years old and was able to pay for college and graduate school with my eBay profits. I am now a CPA working in a major corporation’s tax department. I am still active on eBay with around 200 listings active at a given time. I am very active in the local auction and flea market scene, including the Brimfield Antique Show twice a year. I’m also an active dumpster diver when the occasion calls for it! My eBay usernames are coinopcollectibles and insulators4me, with roughly 3000 feedback ratings between the two accounts.
I am very knowledgeable about tax issues, particularly for self-employed individuals, so let me know if you have any questions and I can provide informal advice!
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There are many deductions out there that most eBay sellers miss.
I would say the biggest is deductible business mileage. Every trip to the post office, an auction, a thrift shop or any other trip for a business purpose is deductible. Most people miss out on hundreds of business miles each year, which really adds up. For example, I rack up around 10,000 business miles each year, worth over $2000 in after tax money.
Another significant deduction often missed is business travel. If you spend more than 50% of a trip for a business purpose, all of the reasonable costs of that trip are deductible. For example, let’s say I fly down to Florida for 5 days to purchase some inventory. If I spent three days of the five day trip doing business (60%) and the remaining 40% of the time at Disney World, all of the reasonable costs of that trip are deductible, including the flights in their entirety and all of the hotels, because the primary purpose of the trip is business. However, the expenses must be ordinary and necessary for the business, so I wouldn’t try to deduct the cost of Disney World tickets as that is unrelated to the business. The key is properly documenting all of your expenses along with their business justification.
Another is a pro-rate spread of personal vs. business expenses. This is a bit complicated to explain, but maybe an example would help. I spend $500 a year on my Comcast bill for my internet. I use my internet 50% of the time for business, so I should be able to deduct $250 as a business expense. These situations really add up.
Another significant thing to think about is more a mindset than a deduction. The concept of “after tax cost” is a consideration most people overlook. Because tax rates are so high on the self-employed, the cost of purchasing business equipment is significantly less than the actual cost of the equipment. For example, let’s say I purchase a machine for use in my business. I spend $1000 on the machine and my marginal tax rate (the tax rate I pay on the next dollar I make) is 45%. The cost of that machine isn’t really $1000, it’s $550 because the government is allowing you to deduct the cost of the machine on your taxes, which reduces your taxable income.
Hopefully this all makes sense. Sometimes I get stuck in my “tax logic” and have trouble translating things to English!
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This is great. We always keep investing in our businesses because we can deduct/depreciate those expenses. Thanks storage building!
Big questions resellers have is Cost of Goods Sold.
Since scavengers aren’t traditionally buying bulk items with invoices, how do you keep track of the stuff you buy and sell at yardsales, estate sales, auctions, etc? -
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Yeah, that has been a problem for me as well. The official IRS response would be to require a receipt for every single item you buy, which is of course impractical in our line of business. I would say the best thing to do for items where getting a receipt is not possible would be to keep hand written records that are as contemporaneous as possible. For example, I carry a small notebook around with me at the flea market where I write down my purchases immediately after purchasing them. Later in the day, I enter the information into a spreadsheet on my computer, but keep the information in the notebook for supporting documentation. While this situation isn’t ideal, there is case law out there that suggests courts and the IRS have accepted such a methodology if the expense is ordinary, reasonable and necessary.
Another interesting approach I’ve seen used by people is to withdraw a specific amount of money from the bank before hitting the flea market in the morning, spend on purchases as you normally would and then deposit any remaining funds back into your account at the bank. The difference between your starting cash and the ending deposit will support the fact that you spent a certain amount of money on inventory. This is of course more cumbersome approach, but something to think about.
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