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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!
