Selling Online and Taxes | Facebook Marketplace
Colby Woods Tax Video
*It’s important to note that the above tips are for informational purposes only and should not be taken as tax advice. It is always recommended to consult with a tax professional or financial advisor before making any decisions related to your taxes. Every individual’s tax situation is unique and important.*
In this video, Colby takes the time to explain some of the details and records that we need to be keeping to file taxes and keep our books accurate and up to date! Please keep in mind that this video was recorded in 2022, and tax information does change.
Quickbooks Pro Software, recommended by Colby Woods #ad
With the rise of e-commerce and online marketplaces, such as Facebook Marketplace, many individuals have turned to sell goods online as a means of generating income. However, with this shift in business comes a new set of tax regulations that can often be confusing and overwhelming for sellers. In this transcript from the YouTube series “Super Seller Sunday,” accountant and tax preparer Colby Woods provides insights into some of the tax implications of selling goods online and offers tips on navigating these regulations.
Major Deductions
One of the first topics discussed is significant deductions that sellers should be tracking. Woods emphasizes that any expenses related to the business should be tracked, including costs of goods sold, mileage, shipping supplies, and more. However, there are also some deductions that sellers may overlook, such as a percentage of their cell phone bill and home office expenses. Woods advises sellers to consult with a tax professional on the latter, as there are complex rules regarding what constitutes a home office.
Sellers who are full-time resellers may also be able to deduct a portion of their health insurance premiums as an adjustment to their income. Woods suggests that sellers familiarize themselves with the types of deductions available by reviewing the IRS’s basic Schedule C tax form. Ultimately, sellers need to discuss these deductions with a tax professional to determine which ones apply to their situation.
Inventory Purchases Expense:
Another important topic discussed is how to handle inventory purchases as an expense. Woods notes that this can be a complex issue that varies depending on the individual business. However, for those filing a Schedule C business, the IRS Schedule C instructions provide clear guidance on handling inventory purchases under section or part three cost of goods sold.
Woods also recommends checking out a video for further clarification, as the IRS details can be confusing even for tax preparers. Ultimately, Woods stresses the importance of consulting with a tax professional to determine the best approach for handling inventory purchases as an expense.
- https://www.sba.gov/
- https://irs.treasury.gov/freetaxprep/
- chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-pdf/i1040sc.pdf
- https://www.avalara.com/us/en/learn/guides/sales-tax-nexus-laws-by-state.html#marketplacefacilitator
- https://www.youtube.com/watch?v=X6PniwHEj-c
Sales Tax:
Sales tax is another area where online sellers may face confusion and uncertainty. Woods notes that sales tax regulations vary depending on the state, with some states requiring sellers to collect and remit sales tax, while others do not. In addition, there are different requirements for registering for a sales tax permit, depending on the state.
Woods recommends that sellers consult with a tax professional to determine their state’s sales tax requirements and understand the potential penalties for noncompliance. Additionally, there are various software solutions available that can assist with calculating and remitting sales tax.
Estimated Taxes:
One area that can often catch online sellers off guard is estimated taxes. Woods explains that estimated taxes are quarterly tax payments that are required by the IRS for those who expect to owe at least $1,000 in taxes for the year. This can include self-employed individuals, such as online sellers.
Woods advises sellers to consult with a tax professional to determine if estimated taxes are required for their specific situation. In addition, sellers should be aware of the deadlines for making these payments, as well as the potential penalties for failing to make them.
1099-K Forms:
Another potential tax implication for online sellers is the 1099-K form. This form is issued by payment processors, such as PayPal and Stripe, to report the total amount of payments received by a seller during the year. Woods notes that sellers who receive a 1099-K form should report this income on their tax return but should also ensure that the income is accurately reported to avoid potential discrepancies.
Woods advises sellers to review their 1099-K form carefully to ensure that it accurately reflects their income. Additionally, sellers should keep thorough records of their income and expenses to be able to substantiate their tax returns if needed.
5 tips to help you find tax deductions
by: Marcus Silva, Marketplace-Sellers Admin
Keep good records:
It’s important for small business owners to keep accurate and organized records of all their business expenses, as this will make it easier to identify potential tax deductions when it comes time to file their taxes. This includes keeping track of receipts, invoices, and other documentation related to business expenses. Using software to help keep track of expenses, like mileage, purchases, and even food expenses that would be related to your business is a good idea. Marketplace recommends using Quick books, or Quicken as a great bookkeeping software to keep you on track and make the most of your business expenses. Below are some examples of typical business write off’s.
Claim business-related travel expenses:
Small business owners may be able to claim deductions for travel expenses directly related to their business. This can include airfare, hotel stays, and meals while traveling for business purposes. It’s essential to keep detailed records of these expenses, including the purpose of the trip and any receipts or documentation to support the deduction.
Take advantage of home office deductions:
If you work from home as a small business owner, you may be able to claim a home office deduction on your taxes. This deduction allows you to claim a portion of your mortgage or rent, utilities, and other expenses related to using a dedicated home office space. To qualify for this deduction, you must use the space exclusively for business purposes.
Claim deductions for business-related meals and entertainment:
Small business owners may be able to claim deductions for meals and entertainment expenses that are directly related to their business. This can include taking clients to lunch to discuss business matters or hosting a business-related event such as a conference or workshop. It’s essential to keep detailed records of these expenses, including the purpose of the expense and the names of any individuals in attendance.
Don’t forget about self-employment taxes:
If you are self-employed as a small business owner, you may be responsible for paying self-employment and income taxes. These taxes, including Social Security and Medicare, can be a significant burden for small business owners. However, you may be able to claim deductions for a portion of these taxes on your tax return.
