posted on January 31, 2002 10:40:22 AM
This is the first year that I have actually made a bit o'money on ebay and I am getting ready to take my information to the tax lady. What kind of deductions can I make. Any creative ideas out there. I know to deduct a % of my home, utilities and gas mileage (post office and auction trips, etc.) Of course, office supplies. What else are you folks doing that may help me not to pay so much in this year?
posted on January 31, 2002 01:01:35 PM
Just a warning that a home office deduction raises a red flag with the IRS and greatly increases the likelyhood of an audit for small businesses.
The guidelines that the IRS has for home office deduction are stringent and a number of criteria must be met to qualify. I recommend that you spend some time with your tax professional before automatically seeking this deduction.
posted on January 31, 2002 01:11:41 PM
I am not a tax accountant but I read (somewhere in IRS stuff) that if you deduct a portion of your home when you sell the home you will owe tax on all that has been deducted over the years.
I too am looking for some deductions that are not so obvious. But my home is not one of them.
posted on January 31, 2002 01:21:17 PM
you cannot count a kitchen table or counter as a home office. it must be a legitimate office that is used soley for business purposes.
this definitely raises a bright red audit flag at the IRS. getting too creative can get you in a whole lot of hot water.
a GOOD accountant is worth their weight in gold in this situation.
posted on February 1, 2002 02:23:17 PM
My business is the Flea Market & The Internet.I have to pay alot rent which is deductable.I also rent a building for storage for my merchandise which is deductable. Things like bubble mailers and such is deductable.Auto expense for business use of your car is deductable, we have to drive to other states for some of the merchadise we sell as we buy alot at once. I don't deduct for office use of home even though I probabaly could.
posted on February 1, 2002 02:31:31 PM
Forget home office. How about ISP bills; new computer &/or equipment, or depreciation of same; DSL or cable, if any. Related software. Stationery. Pens. Publications: Related magazines & books. Like that.
posted on February 1, 2002 02:47:37 PM
That's my plan is to deduct anything that has to do with the internet, b/c I got it for the purpose of selling on ebay.
posted on February 1, 2002 05:57:25 PM
I wouldn't worry about taking the in-home office deduction--IF YOU QUALIFY-- for two reasons.
One, the recapture of depreciation rule (that you must recapture the depreciation you took on the business portion of your home) is rendered pretty moot by the fact that you now can receive $250,000 (or $500,000 if you are married an filing jointly) in tax-free profits on your home when you sell. Most of us would not have anywhere near that much to recapture.
Second, if you genuinely are eligible for the deduction and the rest of your return is properly prepared, why lay awake nights worrying about whether you might get audited? Less than 1% of all returns are checked. The deduction can amount to thousands of legitimate dollars and is well worth the tiny risk of an audit, IMO.
posted on February 1, 2002 06:59:31 PM
sonsie - I believe you are mislead about the exclusion of profit on your home and that it would apply to your eBay space. Your eBay space becomes set apart from your house as business property and would be subject to recapture of depreciation. It's the REST of your house that probably wouldn't amass the generous amount of gain allowed to be excluded from taxation.
posted on February 1, 2002 07:20:20 PM
Another thing to be careful about when deducting/depreciating business expenditures is exclusivity or percentage of busines use.
Your ISP fees, when used exclusively for business would be 100% deductable. But the IRS knows that few small or home businesses use the intnet connection exclusively for business.
The same goes with the PC. If you or your kids use it to play games, chat, surf, personal storage of data (music, pictures, correspondence) etc., then only a percentage of the cost can be depreciated for business purposes.
The digital camera, scanner, printer ? Same rule applies. If you're using it for personal use and business, only a percentage of the value can be depreciated/expensed.
I understand the rule..I just wasn't clear in what I was trying to say. Since for most people, virtually all your profit is tax-free in this situation, the recapture of depreciation (assuming that you even took depreciation to begin with) is much less of a financial factor than it was under the old law. Paying tax on, say, $20,000 of recaptured depreciation takes a very small bite out of, say, a tax-free $400,000 profit.
You can avoid even this small issue by simply not depreciating your business-use portion to begin with, from what I understand. Your're not getting the benefit of the depreciation up front, and you should therefore not have to recapture it at the back end.
posted on February 2, 2002 05:09:12 AM
Thanks for all the tips so far. I actually rent so I don't really need to worry certain things some homeowners need to. With my previous job, I worked from the home and have claimed a home office for more than 3 years and have never had a problem. As said by a previous poster... a good tax person is worth their weight in gold. I am worried that some people here who might benefit from claiming a home office will shy away because there seems to be an air of "being afraid of the IRS"
I would suggest contacting a tax professional and letting them know what you do and have them help you decide.
When I posted this thread I wanted to make sure I have all my receipts etc ready to take in next week. I am glad I posted because I forgot a couple items that were mentioned so I thank you folks for that.
posted on February 2, 2002 05:26:35 AM
Don't forget those hefty Ebay fees themselves. A huge business expense for a lot of us.
If you are good at keeping all your postal reciepts....... I make a special note and circle all the times postage cost me more than what I quoted to a bidder. Quite often i'll quote $3.50 priority mail then go to the post office and find my package 1lb. 2 oz and I have to front the $.45 difference. Those I file under business losses.
Also the value of items that became unsellable during the year are business losses. Stuff you broke, or returned items damaged in the mail.
As long as you have documentation to back up anything you claim you should be fine even if you do get audited at some point.
Those lovely paypal fees since you technically can't pass them off to customers and the fees if you have your own merchant account.
posted on February 2, 2002 07:50:40 AM
If you use a tax professional I would also have them look into into a deduction for production costs of goodwill and depreciation of your username and feedback.
posted on February 2, 2002 06:04:38 PM
Interest. Like credit card interest if you can prove that you use that card to buy postage, supplies, inventory, etc. and you ran a balance.
Bank charges. You DO have a business account, right? NSF fees. ATM fees.
Utility bills. We rent a 1000 sq ft building, so we've got alarm company bills, electric, gas, phone, DSL, water, garbage and probably others I can't think of.
Repairs. Did you have to get your computer fixed last year?
Cleaning supplies, both for your work space and to spiff up inventory as needed.
Don't forget refunds, since you're already claiming the original income from those sales.
Leasehold improvements. We had a number of things installed, like a hot water heater and an exterior floodlight, that really should have been there before we moved in.
Promotional expenses. We sent out candy with all our Christmas orders.
posted on February 3, 2002 07:11:37 AM
Folks wondering about income tax and expenses, etc. really should read "IRS small business guide", and the Schedule C and its instructions. Otherwise you will pick up a few good hints here (and some not so good), and miss out on the total picture. Also, any tax preparer (that I have ever known) will be glad to get you started, as he/she may well have you as a customer in March.
posted on February 3, 2002 10:27:02 AM
Also be aware, that as a business, you'll have to file quarterly sales tax forms, which is an enormous pain. I'm always late and always paying penalties, because I'm personally overextended. So if being on top of paperwork & dates is not one of your strengths...
Anyway, a good tax guy is right. I like the ones that used to work for the IRS. And that they'll show up representing you to the IRS in the event of an audit (for a reasonable fee, unless you have time for that too), and who will lose you refund money in favor of making your return inconspicuous so that you never get that audit.
