posted on December 12, 2000 09:01:37 AM
HI all - basic question about recordkeeping. For items you sell [closed on ebay] in December, but payment doesn't show up until 2001, do you record them as sales in 2000 or 2001?
posted on December 12, 2000 09:42:43 AM
You can split them up if you want, use the cost of the items and the fees for 2000, and then hold the income until 2001 income...which is probably the proper way to do it...
I think I'm going to include the payments as 2000 income...it won't be a great amount as I dwindle down my selling for the year,
posted on December 12, 2000 10:26:17 AM
I asked my accountant about this. He said that if the deal closes in 2000, the income should be reported in 2000, even if the payment doesn't turn up until 2001.
Similarly, if you incur an expense (eBay fees; supplies; etc.) in 2000 but you do not pay it until 2001, it is still a 2000 expense.
This same principle holds for income/expenses from one month to the next. If the activity occurs in one month (or year) it should be recorded then, even if the income or payment is not made until the next month (or year).
posted on December 12, 2000 12:10:38 PM
When you fill in your Tax form "Schedule C" you can check that you use "cash" basis of accounting. By doing so, you can claim expenses when paid for and income when received even if they cross years.
posted on December 12, 2000 05:08:42 PM
mouselady, I think your accountant was assuming an accrual system of accounting. If keziak reports income on a CASH basis, like most small businesses (Schedule C), the income is reported at the time payment is *received*. Keziak, I'd suggest asking your accountant or another tax professional familiar with taxes and accounting and with your business, so that you can report it correctly. After all, if you use the cash system, but report income not yet received, what will you do if some of those people are deadbeat bidders? In 2001, you won't be able to write off a "bad debt", because that's only available to accrual basis taxpayers. See what I mean about asking a professional who's familiar with your situation and accounting practices?
posted on December 12, 2000 05:47:24 PM
birdwatcher:
Talking with my Dad's CPA of 25 plus years I was told when I started my Antique Business 9 years ago that I can't use cash because I have inventory and that anyone that has an inventory MUST use an accrual method of accounting. Makes sense, because if you use a cash basis that means no inventory should be left at midnight on 12-31 otherwise it accrues to next year!
posted on December 13, 2000 08:18:55 AM
As an accountant, I've set my system up under the accrual system of accounting, specifically to allow me to carry an Inventory. I've had to backtrack some of my numbers because when i first started, I was just selling a thing or two I had extras of or didn't need any more. Lately, though its really taken on a business feel to it, and I am making money, so I know that I can't get buy declaring it a hobby. SOOOOO.. I've spent the past week re-creating the financial records for the year based on my receipts (which I always keep) and my Ebay, Paypal, and other online records.
Under the accrual method, at the time the sale closes, you have a revenue (credit) and a receivable (debit). When you recieve the payment, you have a receipt of cash (debit) and release the receiveable (credit that offsets the original debit).
With some products, like computer software, you would defer revenues for undelivered sales into the next year when they are delivered (I have that situation going at work). For my items, they are small enough in nature, generally, that the crossover isn't necessary to defer.
Hope that helps a little. And Schedule C and Schedule SE are SOOO much fun to fill out... 8) At least I'll be ready for next year to hit the ground running.
posted on December 13, 2000 09:51:40 AM
katiyana - have you declared your income from ebays sales as a hobby in the past? I have the Schedule C already, but I guess if you are a "business" you use Schedule SE too?
good grief, I wish our accountant would return my phone calls...
posted on December 13, 2000 09:58:46 AM
As far as I read the IRS code, you have to choose the accrual method if you keep inventory. It would seem that almost everybody selling on ebay and the like would have inventory (even if it's sold almost immediately); cash basis is for people who perform services, such as carpentry, translating, whatever.
posted on December 13, 2000 11:08:12 AM
2000 is my first year of Ebay sales, actually, so I haven't had this question to deal with in the past. If you earned a profit (as calculated on Schedule C), you have to pay Self-Employment taxes on that income. That is calculated on the Schedule SE. On the plus side, you get "credit" for 1/2 of it on your 1040, so you really are only paying 1/2 of the calculated self-employment tax, in additional to the income tax on the net income of your business.
One of the litmus tests between hobby and business is if you made money 3 out of 5 years - this is my first year, and I've made money, so to be careful, I'm going with the safe assumption that my good sales will continue, and I'll continue to be profitable. Hence the reason I'm going the Schedule C / Schedule SE route.
The IRS website at www.irs.gov has the forms and instructions available which may be helpful to review. I can't point to specific line numbers right now. However, the short answer is that if you make income on Schedule C, that amount carries back over to the 1040 AND to the Schedule SE for calculating Self-Employment Taxes.
posted on December 13, 2000 05:30:37 PM
katiyana, you don't get a tax credit for 1/2 of the Self-Employment tax - you get to take that amount as a deduction against your income (I think it's on line 27?). In other words, it reduces your taxable income, but does not directly reduce your taxes by an amount equal to 1/2 of the SE tax. I have always felt that self-employed people get a raw deal, having to pay both the employer and employee halves of social security/self-employment tax. But hey, no one at the IRS asked me!
Without knowing what you sell, keziak, it's hard to say if you should be on an accrual or cash basis. If all you sell are downloadable files or something like that, then you don't have inventory. All I know that as a corporation with inventory, my company is on an accrual basis. Man, I respect my accountant! Nay, I worship him! Without him, I'd be completely lost.
posted on December 13, 2000 06:09:29 PM
Self-Employment Tax -
You're right of course, I used the wrong terminology when describing it earlier. If I had had the forms in front of me, I could have explained it better.
Rather than a tax credit, you get an income deduction for 1/2 of the calculated self-employemnt tax.
Like I said, this is my first year of completing these forms for real - if I was an old pro I'd know these things inside and out already.. *laugh*
posted on December 14, 2000 09:35:11 PM
Technically you don't have to report any of these revenues this year if you don't want to. The rules that would apply to you state that a revenue transaction occurs when the revenue is realized or realizable and it is earned. You can argue that because there are so many deadbeat bidders on ebay that it is not realizable. I've done this in the past and it will work. You may say that it is not worth the hassle, but postponing the taxes due until next year will be beneficial according to the time value of money concept. It's better to pay a dollar of taxes a year from now then it is to pay that dollar today.
