Tax Tips For eBay Sellers - Turning Personal Expenses Into Business Expenses

Posted by Nick Niesen on November 8th, 2010

Few people realize that starting a side-business on eBay is actually a great way to save money on your taxes. The trick is to make sure you?re putting all the additional expenses you incur against your additional income. Running an eBiz allows you to take numerous deductions that can add up to a lot of savings.

Deduct Your Home Office

By definition, if you?re an eBay seller, you have a home office. You have to have a space that?s used exclusively for business, whether it?s in your spare room or your basement. But having this allows you to take a percentage of your mortgage interest, your utility bills, your homeowner?s insurance, and your homeowner?s dues as deductions against your business. And if you use your home to store inventory, even if it doesn?t have its own room, you can include that space in your deductions as well.

Deduct Your Children?s Pay

Rather than giving your kids allowances, pay them to help out with your business. You?re moving income out of your tax bracket, and you can pay them up to $4,900 a year before they?ll have to pay taxes on it. Tax strategist Diane Kennedy, of http://TaxLoopHoles.com, says there are three rules to employing your child:

1. Have some kind of written job description.
2. Make sure they?re keeping track of the time they actually work.
3. Pay them a reasonable wage.

Says Kennedy, ?Take a look at?personal expenses and how they could become business expenses. Things like employing your kids, having a home office, maybe your car you?re using to run errands?look at all the things you?re spending money on now that could become business deductions.?

How to Protect Yourself

You need to be able to prove your deductions are legitimate business expenses, so it?s crucial you keep good paper work on everything. Track where your money?s coming from and what your costs are, and have documentation to back it up. Should the government ever have questions, you?ll be glad you did.

Good record keeping will go a long way towards satisfying the IRS. But you can lessen your chances of getting audited in the first place by forming a corporation or an S-Corp. If you default to a sole proprietorship, you have a one in twelve chance of being audited. Incorporating also gives you certain tax advantages.

When done properly, selling on eBay allows you to save money on the back end with taxes. As Kennedy says, ?So many people don?t realize that just by having this little side business, they can actually immediately start paying lesser taxes. In fact, we say ?eBay tonight and pay less taxes tomorrow.??