posted on September 1, 2000 09:42:37 PM
Over time I have formed the conclusion that ebay seller has evolved into its own business model and form. This form doesn't follow comonly accepted business practices and it has reached the point that I refuse to call it business and will call it ebay selling. Don't want to insult real business by equating this to it, apparently judging by the USA Today Article, Meg and ebay agrees with me.
IRS Agent - Hello [email protected] welcome to make this painless as possible I need to see your books so I can match them to your Schedule C filed this year with your taxes.
auditedseller - Books I got no books, I sold them on ebay in Novemeber and got $500.00 for them and then made $750.00 off the shipping by telling the buyers Priority Mail and actually shipping bookrate.
IRS Agent - No I mean your Accounting Books for your Business. You know your cash journal, General Ledger, and Financial Statements.
auditedseller - Cash? Don't you know on ebay we only take checks, money orders, and paypal. I heard some international customers send cash but I refuse to deal with foreigners. The only statements I have are my bank statements, don't see where they will be much help I cash all my postal money orders at the post office, and don't take personal checks, in fact I won't let paypal wire the money to my account.
IRS Agent - Let me get this straight you have no ledgers, no journals, no record of accounting for this business? How did you fill out the schedule C for your return?
auditedseller - I used my EOA emails to all of my buyers. Then I just looked at that tax form and guessed at everything. I did take the time to count up all those outrageous listing fees and FVF I paid to ebay.
IRS Agent - So you made after expenses 900.00 on ebay. What is the ending value of your inventory?
auditedseller - Yep I only made $900.00 after expenses and I have no inventory. I sell stuff that I buy at garagesales. I buy it on Saturday and list it on the following Monday. No inventory whatsoever.
IRS Agent - Can I see your EOA's as you call them.
auditedebayseller - Hands agent a stack of 2000 EOA's. Then says its all there what I charged for shipping, how much I marked up handling fees, I even was able to master the art of passing the ebay fees and commissions back off on the buyers directly. I did a great job in my ebay business this year.
IRS Agent - I will need some time to total these EOA's. Can you wait outside until I finish that?
auditedebayseller - Sure, I can where is the soda machine?
30 minutes later
IRS Agent - Mr. [email protected], please come back in I am ready to finish the audit.
auditedseller - Thanks I was starting to get worried that I might be in trouble?
IRS Agent - I totaled you EOA data and the funds you received from customers for shipping and handling. It seems your ebay operation had a total revenue of $36,000.00 from all sources. Let's go over your expenses from the Schedule C. I see you took phone expense of $1080.00, ISP charge of $263.00, ebay fees of 500.00, ebay commissions of $700.00, packing supplies of $1500.00, and a vehicle deduction of $960.00. There are no receipts or other proof of inventory purchases so I can't allow that reduction to your revenue.
auditedebayseller - Wait a minute no inventory deduction?
IRS Agent - Yep and your ISP and phone expenses are inflated. You can't deduct the whole bill only the fair portion of the bill that went to the business. SO I adjsuted ISP and phone by 50%. You really need to keep books for this business if you really call yourself in business.
auditedseller - I sold my books I told you that. And I am not in business I am a ebay seller.
IRS Agent - Well ebay seller after finishing this audit your ebay business after expenses earned $31,669.00 last year. Since you only paid taxes on $900.00 you owe the Government $8,615.32 plus interest and penalites to date of $979.00. For a total of $9,594.00
auditedseller - I made that much, it doesn't seem like it. I mean everytime I got a money order I used it for gas, allowances, food, a new TV, cable bill. It just don't seem like made that much.
IRS Agent - Well you made that much and owe the government taxes on it. May I suggest that you not continue to make the mistake of thinking ebay selling is not subject to the rules of standard business. Also I am being fair because it is quite obvious that you haven't clue of how a real business is run. I could actually charge you with tax evasion but I can tell you haven't the foggiest how to keep books, what expenses in a business are, what revenue is, how to keep inventory and account for it. SO instead stop viewing it as ebay selling and start treating it like a business.
auditedseller - I don't have $9,594.00 to pay you.
IRS Agent - You have a business with assets that we can seize. You have a new computer, scanner, digital camera, a car that you took depreciation mileage for in your business. You have a lot of assets. if you had a balance sheet you would know exactly what your business had and what it is worth. here's what I going to do, I am goin to set you up on a 12 month payment plan. Your payments are $896.88 per month. And please consult with an accountant or business professional to set up a general ledger and inventory accounting system.
auditedebayseller - Thanks you have been real nice and I really wish I hadn't not listened to that advice given out on Auction Watch about this is business.
IRS Agent - Don't worry about it just learn fro your mistake and please don't be late with our payments.
auditedseller - I won't
auditedseller gets home and the first thing he does is sit down and divide the total tax bill by 2000 auctions and pads his handling an extra $6.00 on each auction
posted on September 1, 2000 09:58:53 PM
networker67:
Wow You missed over $4500.00 in self employment taxes, and the automatic foward of the audit results to the local state income tax board. add another $3000.00 there. for a round total of $16,500 due now! When I was audited the last time some poor smuck , asked about monthly payments, the auditor exploded, Who Do you think We are? Sears! This was a few years back. Before the new kinder gentler IRS that we here about.
LOL
Ed
edhdsn
[ edited by edhdsn on Sep 1, 2000 10:00 PM ]
posted on September 1, 2000 10:20:32 PM
networker67:
The other mistake that I see is the IRS Agent, adding the EOA, he would have had that information given to him by ebay, you know that nifty list of FVF in my ebay, the one in your account that they warn you about, do not do this it takes a long time, mine does, shows all real income and FVF from 1996, he would have that list, and if my audit ended like that, His last words would be, lets set up an appointment for years 1998, 1997, and 1996. As the IRS can go back as far as they want on one string, if they can prove fraud. 1996 is the end of my string on ebay.
posted on September 1, 2000 10:41:17 PM
macandjan:
Have you ever had a audit as person doing business, its not that simple. I went into audit hell, 3 years in a row, no changes, got the 4th notice, paid a tax attorney, then they left me alone. No 4th year audit. The IRS and I buddies for the last 7 years, but I am just as prepared as I was before. Buy a box lot at an auction, invetory it on a cost per item. Sell on ebay some items I make a lot of money on some I lose, if the IRS doesn't see a logical patern of profit and loss, they go alot deeper. One thing if you have proof of a expence that is dumb, but real, they cannot take it away. This is really going back , but we sold a barbie doll to a client in Orlando, and we wanted to see Disney World, so I took the doll personally to him, wrote off 1 round trip air fare, one day auto rental, one night hotel, had all covered including a signed delivery receipt, auditor tried to exclude it, asked for a ruling by his boss, and he said every thing is there, proof of sale, proof of delivery, not a smart business move, but you do not have to be smart, just honest. I did not try to deduct my wife , food, or extra days in the hotel.
posted on September 1, 2000 11:11:29 PM
ehhdsn and macandjan - I call myself trying to send a humorous message to ebay sellers that this is real business. I am hoping that ebay sellers will become business people and stop some of the ebay seller nonsense that is destroying the medium.
After reading many of threads here and the views on padding handling with all kinds of ridiculous things like ebay listing fee, ebay final value fee, and so on. Then read people say its a business; what's wrong with getting his expenses back? I am convinced that ebay sellers as I now call them haven't the foggiest idea about books, inventory accounting, expenses to reduce revenue and so forth and such and such. I do realize that some ebay sellers might get offended. But hopefully this humorous take on a seller being audited makes them realize the errors of their ways.
What part of if you shift all of your expenses back to your customer in padded handling fees you greatly increase your taxable income; do ebay sellers find so difficult to grasp? I bet both of you a coke and smile that someone will post that handling fees are deductible expenses.
posted on September 1, 2000 11:26:44 PM
networker67:
Counter that bet, and raise a shot of your fav libation, that they think shipping and handling is not income, and must be balanced with proof of true cost of service provided.
posted on September 1, 2000 11:34:24 PM
macandjan:
IRS basic rules are simple. Report all income, you can deduct all costs that you can prove. I was not smart, the supervisor, asked me later, if we went to a doll show while we were there, and if my wife was active in the business, I said she was the business, I was just the delivery boy, he told me I could have deducted her flight as well, as she was on a shopping trip.
posted on September 2, 2000 12:03:06 AM
networker67:
Please understand something, after seeing your posts on my thread, and others, my respect for you is the highest, and I would love to met you, and would like you as a freind.
I know that this was an in jest post, but the root of comedy, is the true pain of others. and us looking from a distance.
I am just trying to add the pain, so others will laugh!
Laughing is just a release of seeing pain of others. And thanking your personal GOD, glad that did not happen to me!
posted on September 2, 2000 02:41:24 AM
edhdsn - I know audits are not a joking matter victim of three to date. But I am hoping that seeing it in a humorous sarcastic light might send a subtle message to the ebayer who isn't handling the back end of the business properly.
I sound awful and harsh at times trust me I know it. However too many ebay sellers have this very casual approach to e-commerce. Oh Congress hasn't regulated it yet so I don't have anything to worry about. So many of them have the front end of the business down to a tee. But they haven't a clue about the back end. Tell them that the backend is the most important they laugh at you. Any schmuck with a PC/Scanner and a place to host pics can list a few items and turn a quick buck on ebay. It isn't exactly rocket science but only a person with a true entreprenuial spirit will make some real money here.
Well I hope they take light and see the message of this thread. However some of them really might need that major shakeup to check that view point they have. I knew you saw the humor, I almost fell out of my chair writing it.
Don't let this post die! It is refreshingly thoughtful, and THANKFULLY NOT another "seller is gouging shipping charges" thread.
Folks, keeping good records isn't all that difficult (I'm a CPA). Just be prepared for the IRS so you can CYA.
1999 was the first year I sold on Ebay (only a partial year I might add). I do this part time. I thought I had made a few thousand, perhaps, but after deductions (ALL LEGIT -- ALL WITH RECEIPTS) I actually had a nice little business loss to deduct on schedule C. On your deductions don't forget mileage to the post office & other business trips. Fortunately, my post office is about 1 mile away from my day job (this is a Charles Givens financial tip, by the way), so I could to to the PO frequently after work and deduct most of the trip, all legit.
For inventory I just counted my stuff before going out New Year's Eve!! At least I had my counts, and then I could go back to my invoices later & compute the costs. Not a biggie!!
As a start, go to the government website & download instructions for a schedule C, then you'll have an idea of what deductions to track. In addition as payments come in jot down the date, the total amount received (including shipping charges), what it was for, and the customer's name, and you'll have a nice start for your cash receipts journal. Have lunch with a tax advisor. Good luck!
posted on September 2, 2000 06:10:48 AM
I keep books. I file the proper forms. I have an accountant prepare my taxes. I pay taxes on all my income just like any other business. I think you are giving serious internet merchants a bad image.
We are full time sellers who gave up other careers to do this and we take our business seriously.
T
As right as you are, I know from going to estate salea and auctions there are a lot of folks out there selling on ebay, and other auction site that think this is free money if they take MO only. When I tellthem about the ability to see every sale and FVF on ebay, and the fact that the IRS has access they turn very pale.
posted on September 2, 2000 07:06:09 AM
I have an accountant with a corner office at the top of a building in Buckhead take care of all that nasty little stuff IRS for me. He's extremely smart and very honest. My accountant and a good financial management program are the two best investments in my business.
Yes, there are real businesses on eBay and there are eBay "sellers." Ebay was founded on "sellers" -- little people selling their stuff. They aren't professionals in business and they can't be expected to act like professionals in business. And they aren't going to go away.
posted on September 2, 2000 07:15:45 AM
jt, lighten up a bit.
This is a good thread and makes sense.
A lot of sellers say they are not a business and don't know one form from the other. I see this question posed all the time. "Why do I have to pay taxes? I'm not a business, just sell stuff from around the house."
This thread was not aimed at legit business people who file their taxes in a timely manner and know how to file.
ROFLMAO at the fictional guy in the story. "Books, I got no books .. sold them all." LOL!
posted on September 2, 2000 09:20:09 AM
jt - trust me I know there are some real business pros out there getting rich while the ebay sellers are sitting back wondering how did they do they that. I know there powersellers on ebay who built their business from the ground up. And there are powersellers whose ebay operation is a profit center of an existing antique or toher collectible operation. In fact we'll change that so that people who are proud to sell on ebay don'tget offended.
From this day forward I will use the term "Professional ebay seller" and "Yardsale Mentality ebay seller" Those two shouldn't cause too much trouble. But then again some of the yardsales will swear they are professional. geesh I can't win
macandjan - I was taught holding that stuff in stresses you out so I let it all hang out. If I were to show you a picture of me you could never guess my age. Finding laughter in the face of adversity and not keeping stress bottled up inside keeps you young and vibrant. Remember the fun I had with ebay's court filings right here on auction watch after they leaked part of their evidence to the media
Yeah it isn't easy being me but I actually do try to work on my faults. Number one networker67 character flaw No Patience with silliness from adults in adult situations, if we are playing let's have fun but know when the world gets serious and change accordingly is my motto
mtnmamma - Just trying to inject some humor. As you know no time for grudges and dwelling on the past here.
posted on September 2, 2000 10:33:30 AM
HAHAHAHAHHAHA
well ok that was the frist reply to this that came to mind :P
Honestly mr auditor I do keep records and I do have receipts for gas and all my home business cost in fact I have receipt proveing it cost me $143 per week for gas and I do use travel time to and from my job as well as week end travel as a opertunty to buy inventory and get to the PO, to ship goods for my sales milage on my car is 60,000 miles a year.
my total for gas was $12,000 this year.
No lie this is fact.
I have one phone line that is tied up busy online 12 hours a day 7 days a week on line only time anyone can call our house is when im working my day job here is my mother inlaw to atest to this fact.
all my online time is business related either listing up loading auction advertizeing I also have my own domain address and regularly use the computer to up date websites for other customers .
I have had to invest $3000 in new computers this year its dificult to have an online business with out one that works and its cheaper to buy new then to repair and up grade these day. I did correct this problem I got tired of buying new I now lease the one I use for business at $20 a week.
my ISP cost me $240 a year it used business related 98% of the time.
for the past six year I have had my electric bill tracked and its been esstimated that running my computer has incressed the bill for this year $35 a month which is 15% more then last year.
as my copys of auction listing and post offices receipt can show I gave over $200 in free shipping this year to some lucky buyers.
My entire home looks like an indoor flea market.my investments tied in unsold invetory
is $700 about 2% of this was bought at garage sales so I have no receipts or proof of this part at all.
I have up for sale 157 item which repersents this inventory with the total is of the starting bids for these auction with no garentee of sales is $1280.
I purchase this year to improve my business a new printer $60 a new scanner $100 a new digital camera $200 and 3 computers $3000 .
I donated $6000 in webdesign and admin charges to local churches in the area here is the receipts and even the domain names .
here is my bank statements for my business which shows clearly it cost me $500 in fee features and FVF to list my items.
and there is a total balance in this account of $189 free and clear profits for the year.
I am sure if you take into account the deductions for this home business and Deprsasion of my equipment and my unsold inventory, my liabiltys far out weight my income. if this wasnt just a hobby and was a business this would be a good candidate for bankrupcy courts.
folks if you have a family of 4 and make less then $187 a week There is no state taxes income tax accessed at all on you in most states.
your federal tax will be less then $4 for that week .and at that rate for a whole year even if you only pay $100 in taxes when you file the goverment will concider you in poverty pay you all your money back pluss $2000 or more additional above that.
if you have a day job and normally get $1000 to $2000 return and have less the 10,000 income from your auction sales you can add this auction income and still may have a small refund comeing back from the IRS .
state tax will vary depending on where you live and you may end up pay a few extra dollars.
you can add it as income from a hobby
you acountant will warn you when your hobby is atarting to cause tax problems and recomend you start fileing as a home business and most who sign your taxes will anwser all question in an audit about the return they filed for you .
