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Make Online Business Tax Reporting Easier

What you need to know as you prep your tax returns.

Q: Any tips on how to make online business tax reporting easier? What forms do online sellers need to file, what should we have handy and what write-offs can we use? 

A: Let’s start with the basics. While you certainly should check with a certified tax professional in your state about your specific tax situation, most online sellers are considered sole proprietors, or LLCs if they have registered as an LLC.

The forms

This means that you report your online selling business on a Schedule C form, which is attached to your 1040 form. The Schedule C allows you to report your full income and revenues as well as the expenses and deductions, which reduce your taxes.

Part 1 of the Schedule C is where you should report your full income. If you have received a 1099-K form, it is critical to have this form handy. The 1099-K is a form that PayPal, Etsy and Amazon send to sellers who make over $20,000 during the year through 200 or more transactions.

It’s important that you report all of the income listed on your 1099-Ks onto your Schedule C, as the IRS will be auditing selected people who under report

The 1099-K form is sent to you and to the IRS. It includes your income totals for the year from that channel. Each company (PayPal, Etsy and Amazon) calculates the form based only on your sales through its company, so it’s possible that you will receive multiple forms, depending on where—and how much—you are selling.

Note: Etsy’s 1099-K form will only include sales made through the Etsy Direct Checkout service. Etsy sales that are paid for using PayPal will show up on PayPal’s 1099-K form.

You should sum up the totals of all of the 1099-Ks you have received, plus any additional income your business may have had and input that into Part 1 of your Schedule C.

It’s important that you report all of the income listed on your 1099-Ks onto your Schedule C, as the IRS will be auditing selected people who under report this income.

Expenses and deductions

The next step for completing your business taxes  is to report all of your expenses and deductions. This is a critical step that can reduce the tax you owe by a lot.

For online sellers, the best and quickest way to pull all of your expenses together is to use a tool like Outright’s online bookkeeping tool. Outright will connect to your eBay, PayPal, Etsy, Amazon, and other online accounts to pull in all of your transactions automatically and categorize them into the right categories.

Common deductions that online sellers take are the home-office deduction, retirement contributions, charitable contributions or donations of obsolete inventory, and mileage

You will be able to quickly see how much you spent on things like marketplace fees, shipping, returns and other expenses without needing to do a lot of manual work. (Outright has a free version and a paid version).

The final step is to calculate your deductions. Common deductions that online sellers take are the home-office deduction, retirement contributions into SEP IRAs and individual 401(k)s, charitable contributions or donations of obsolete inventory, and mileage.

Taking the mileage deduction does require you to track the amount of mileage you incurred when driving for business purposes, such as trips to the post office or the thrift store. But with a deduction of 55.5 cents per mile driven, this one can add up quickly and give you a great savings!

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.



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