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A Few Minutes Can Save Hours

Why it's important to start preparing for tax season now

Technically, tax season is over. If you are like many online sellers, you just want to forget the month of April, completely. It was tough enough to pull together all of your records and get everything together for taxes.

Many online sellers don’t worry about taxes at all until March or April, and then spend hours—if not days—pulling together records and receipts for tax time. That’s a mistake.

Treating your business taxes that way is costing you significant time, money and heartache. Let me tell you why.

The 1099-K

A new tax law took effect for online sellers that significantly changes the way you do your taxes. It can cost you a lot of money if you aren’t prepared for it, come next April. The new law requires PayPal, Amazon and other third-party payment processors to report to the IRS your gross revenues for the year on a tax form called a 1099-K. You need to hit certain sales minimums in order to receive a 1099-K, but since these are based on gross revenues, many of you will hit these.

Since the IRS will know the exact amount of your revenues, you need to show all of your expenses, refunds and other deductions to reduce your tax bill

Even people who don’t receive a 1099-K still need to pay taxes on their profits, but those who receive the form need to be even more diligent about getting things right. Since the IRS will know the exact amount of your revenues, you need to show all of your expenses, refunds and other deductions to reduce your tax bill. (You pay taxes on your profit, which is revenues minus expenses and deductions.)

Every expense tracked and reported means money saved on taxes.

A helpful tool

The good news is that the tracking of all of your expenses can be really easy—if you start now. Like most online sellers, most of your expenses are probably from marketplace fees, or are expenses you’ve put on a credit or debit card.

A free tracking system like Outright can automatically pull in that transaction data for you, and can categorize it into the proper expense categories for your tax return. Most of the major marketplaces and credit/debit cards will only allow Outright to pull in historical transactions from three to six months back.

So if you spend 10 minutes now setting up your Outright account, you can get most—if not all—of your expenses categorized for January to May of 2012. Then let it run throughout the rest of year.

Outright will download your newest data each night, so that you are up to date, and have everything ready for taxes, come next April. Outright provides a printable worksheet that gives you the totals for each line on your Schedule C tax return.

Most Outright customers choose to visit Outright about once a week to view the profit and expense charts. But if you are just interested in doing the minimum for tax purposes, setting it up and letting it run will work.

Spending 10 minutes now to set up your free Outright account can save you days of work and save you on taxes and accountant fees later!

About the author

Laura Messerschmitt
Laura Messerschmitt is the vice president of marketing for Outright.com, an online bookkeeping service for online sellers. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Thanks for the great information Laura! I love Outright because in addition to providing such a great bookkeeping tool, you as provide truly valuable information. Keep it up!

  • Clay238

    Laura, where do we put into Outright the cost of the items we sold?



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