Record Keeping and Tax Time for eBay Sellers (plus the best free eBay tracker spreadsheet for new eBay Sellers)
**Before you read, it has to be said that we at ResellingRevealed are not accountants, tax advisors, or anything of that sort. We're just sharing our experiences and you can take them for what you will. If you have questions regarding taxes, ask a professional.**
We regularly see the question posed in eBay seller groups, on facebook, and on instagram, "Do I need to report my reselling income to the IRS?" Yes, yes you do. In fact, if you sell on eBay for the purposes of making money, the IRS will classify your hobby as a business, no matter how you view it (also, if you buy with the intent to resell you need a business license, but that's a story for another time). Whether you make a single dollar or a whole lot (or even lose money), you run the risk of getting audited and owing the IRS if you fail to file.
Our first year as part time sellers led to an atrocious tax season for us. We had just acquired a business license after already selling for a few months, and had no idea that we needed to be keeping all our receipts (let alone tracking our driving miles, etc). After hours of digging crusty receipts out from underneath our car seats and combing through our bank statements, we were finally pretty confident that we got it right. However, the experience left me with two lasting impressions: If you have to pay taxes on something, you sure as heck better take it seriously if you want it to be worth it, and you also better keep meticulous records. The real reason that we encourage people to keep records is not simply to protect themselves from auditing, but to maximize their deductions. Most small business miss out on thousand of dollars worth of deductions because they are simply unaware and don't track them.
Who will find EASY Tracker useful?
While there are better (more expensive) options, it's free, it's here, and you have nothing to lose by checking it out!
Tax tips for eBay Sellers & the best free tracking tools for small businesses:
Many new eBay sellers (and other business owners, for that matter) get very excited when they first start seeing some cash flow. They have (what seems to be) a few hundred extra dollars in their bank account, and start dreaming of the day when their 60 day sales numbers are 10k, 20k, or more! The problem is, most reports that you see from sellers (on youtube, instagram, etc) are made to show an inflated version of their earnings. While it's fun to share big sales, or the high numbers you've hit, they indicate very little in the way of profits. Here is the cold, hard truth: very few home-based eBay sellers net more than 40k a year. During our first year of selling online, we were super proud to be able to post a picture to instagram that showed our 60 day total over 15k. While those numbers sound great to the unaware, we can tell you now that our profit numbers were around $3,000 a month. Which is fine for a boost to your typical income, but not nearly enough to live semi-comfortably where we do. While we're still not rich, we have actual profit numbers now and can finally say that we make a living off of eBay. Remember, you can't improve what you don't track!
What is tracked, improves.
So how can you take your finances by the horns right out of the gate? Well, while it may seem extreme to new sellers, if you are going to be selling on eBay (or having any sort of income from a self-owned business venture), one of the first things that we recommend you do is open a business checking account. Now, it isn't totally necessary for the account to be "Business Account," it simply needs to be separate from your personal account. Spending random amounts of money using your PayPal debit card (you have a PayPal Debit Card right?) or using your personal account for business expenditures is a recipe for disaster when it comes to tax season. Not only have we found it advantageous for our mental health to have separate accounts, but we have found it useful when applying for both a car loan and a mortgage. Since our eBay business is set up as a Sole Proprietership, we can't actually "pay ourselves," but we do a consistent owners draw every Friday. That is, we "pay ourselves" regular amounts on a weekly basis rather than wantonly siphoning whatever/whenever we can. This helps in our budgeting and gives a feel of stability to our business. This is how our business/personal finances currently flow:
The best advice we can give is: selling on eBay is a business and you need to treat it like one. You are a business owner and you need to act like one. This advice can cover everything from being professional when communicating with aggravating buyers (remember...you are an emotionless robot) to keeping professional records of your business. Now that we've got the money flow figured out, let's talk about some of the best tools (free, of course) that we use to boost our eBay business.
We mentioned above that everyone should have a bit of software that links to their bank account and tracks expenditures. There are tons of paid options on the market (which you might find are worth paying for...it's a business expense after all), but if there are free options that are just as convenient, we'd much rather put the extra money in our own pockets or back into our business to buy more inventory! Which leads us to our recommendation: Wave. We connected Wave to our business account and have been on cloud 9 ever since. We simply categorize our expenditures and are able to keep track of what our income numbers actually look like (hint: you make far less that you think...). If you are thinking about taking the plunge on eBay and selling full time, we highly recommend you use an expense tracker such as Wave for a few months first and see how much money you're actually making (and don't forgot to take taxes into account as well).
One of the most common areas that eBay sellers miss out on when it comes to deductions is the driving mileage (not to mention wear and tear on their car). Now, if you have a dedicated work vehicle, you might be better off keeping track of the actual costs related to your car, but for 99.9% of eBay sellers, we recommend you take the standard deduction, which (for the 2017 tax year, the ones you file April 2018) is 53.5 cents per mile. Knowing that you can deduct mileage however is not enough, most sellers know this and fail to do so because keeping track of it is a hassle. Fortunately, there is an easy and free way to do it - or, in the words of a 21st century plebeian, there's an app for that!
The app that we use and recommend to all our reselling friends is MileIQ. It is free (if you track less than 40 individual drives per month), easy to use, tracks drives automatically (so you don't have to remember to start it), and creates official drive logs that are A-OK with the IRS! So if you see us swiping right, we're just categorizing our drives.
Believe it or not, those two services are the only ones we currently use in our business (the fewer moving parts you have, the fewer things can break). Until we're at the point where we hire someone to create a custom piece of inventory software for us, we can't imagine adding anything else to our businesses' financial regiment. What do you use for keeping records in your business? Do you have any particular administrative tasks that are the bane of your existence? Leave us a comment!
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My wife and I are a young couple, still in school, and doing our best not only to make ends meet, but to excel! We feel like we have so much to offer and can kick this world's butt if we can just get on our feet. Join our journey!