posted on January 20, 2003 09:50:24 AM new
I've only been selling for a few months, but quarterly state sales taxes have come due, which prompted me to pose this more general tax question.
My accountant advised me to put 15 percent of sales into a separate savings account, to be used to pay estimated quarterly federal and state taxes. (I am selling as a sole proprietor.) This seems low to me, and as this is a new accountant, I am not sure how much credence to give his numbers.
My sales before expenses are about $1500 monthly. My product expense is a bit less than 16%, but I do have the usual selling costs of ebay and paypal fees, shipping materials, etc. I am wondering if I need to be putting more into reserve for taxes? I would appreciate hearing from sellers more experienced than I -- thanks.
posted on January 20, 2003 10:06:38 AM new
SALES tax and INCOME tax that you personally owe because you are a business are two different animals. I think you need to talk to your accountant again.
It's a good idea to set enough funds aside to cover remittance of sales tax. We remit sales tax once a year because our in-state sales are relatively few. But you might, I guess, have to remit it quarterly.
However, it's not just a good idea, but the law, that you have to pay quarterly estimated (income) taxes to the feds. If your accountant hasn't advised you of this, fire him and get someone better.
You may not have to pay estimated taxes if your spouse is withholding enough from his or her paycheck to cover your joint federal and state tax liability.
Tell me which kind of tax you think you should be reserving money for, and I'll tell you more.
posted on January 20, 2003 02:19:40 PM new
Thanks Fluffy, for your quick response.
It's not states sales tax I'm concerned about -- that's easy to compute, and a piddling amount of money, since few of my sales are in-state. I was referring to estimated quarterly withholding for state and federal taxes.
I do work full time, and observe that my take-home pay is about 70% of my gross salary. Some paycheck withholdings would not figure into my ebay earnings -- FICA, for instance. But I will be paying self-employment tax, along with state and federal taxes -- so a 15 percent reserve, as suggested by my accountant, seems insufficient.
My accountant seemed a bit too keenly interested in my business, asking a lot of questions about my product line -- and made the (alarming!) offhand comment that there was no reason his wife could not be earning similar amounts if she duplicated my business plan. For this reason, I was rather anxious to escape his office without receiving all the clarification I wanted.
He is the only tax guy in town, but I think I will have to make the effort to find someone else out of town. In the meantime, thank you again, Fluffy, for your help.
posted on January 20, 2003 03:23:05 PM new
MilesToGoBeforeISleep, I believe CPAs have confidentiality requirements, just as lawyers, doctors, etc. You might keep an eye on eBay competitors for your product line. If you see a seller from your region, buy one of the auctions, and if the seller is the accountant's wife, well you have the makings for a malpractice grievance to file with the state board.
The accountant might have given you the low perdentage of 15% if there is going to be a lot of equipment to depreciate and other amortized expenses. When you crunch your numbers, you are looking at your gross sales minus your recorded expenses. When doing the annual tax forms the CPA subtracts the depreciation and amortized expenses, making your net much smaller.
Don't forget one way you can hold back more money for taxes is to change your withholding with your employer. For example, if you have on file with your employer's payroll department that you are Married with 2 Dependents, you can change that to Single with Zero Dependents, meaning when your payroll check is processed more taxes will be withheld - sort of a forced savings, but quite effective for not having a huge unexepected tax burden when April arrives.
My CPA has me set up for paying 30% quarterly taxes. I don't have a paycheck, just my investment income and eBay earnings. The quarterly payments for 2002 were based on earnings for 2001, and allowing for an increase in earnings for 2002. I believe the 30% estimate allows for the deductions that the CPA will take, so that quarterly estimates are not at a higher percentage.
posted on January 20, 2003 04:03:14 PM new
First, go to the www.irs.gov web site. Get a 1040 ES/V (OCR) Estimated Tax for Individuals. This will give you a worksheet to determine your quarterly payment. You might also want to print out a Schedule C. You will not be penalized for underpayment as long as you cover "safe harbor". Safe harbor this coming year is (I think) 115% of last years tax payment. So that may be where he is getting the 15%. These forms are not difficult. Also, if you have an SBDC in the area or a SCORE chapter, they provide free assistance. Good luck!
posted on January 20, 2003 05:28:12 PM new
[i]My accountant seemed a bit too keenly interested in my business, asking a lot of questions about my product line -- and made the (alarming!) offhand comment that there was no reason his wife could not be earning similar amounts if she duplicated my business plan. For this reason, I was rather anxious to escape his office without receiving all the clarification I wanted.
[/i]
My realtor was the exact same way. I dumped him as soon as the listing expired and got a new realtor who had no interest in my business (and who, not incidentally, sold my property in two weeks!)
I agree with the person who said increase your withholding from your full-time job. One way to be sure you are having enough withheld is to do a pro forma tax return using your best assumptions and see how it comes out. If you end up owing the government, you know to increase your estimated tax payments. But check with your new accountant: the year I transitioned from a full-time job to selling on eBay full-time, I didn't have to pay any self-employment tax, having already hit the max contribution for Social Security. That might also be true for you.
