Will the IRS believe me??

Hi lady of leather, Guess we we'll find out if they ever audit us. With the fees eBay charges they may question whether we actually earned as much as 15-20%. Never thought I would work again for $1.25 an hr. Thought wages went up since the the '60's
Yes, the store does keep us out of trouble....darn it! Wish you much success in this new AC venture. uptowngrandma

As I understand eBay's reporting of sales,the law concerning such reporting goes into effect in 2010. I think that sales have to be $20,000 or more to be reportable.I think we can see now that eBay was forced to eliminate all non-electronic forms of payment because of the change in the tax code.That being said, if need be I am preparing to form an LLC corporation should the need arise.Then I will be entitled to write offs,such as business use of part of my residence,utilities,possibly a vehicle used for business,fuel,trips defined as "business" etc. And most importantly separate my property from the corporation to limit my liability,so if I have to play by new rules,I'll squeeze out as many breaks as I can.

I was a tax preparer for 5 years with H&R Block. And have always done my own taxes. It is very common for businesses to operate at a loss. This will be the 3rd year that I saw a loss with my business. Now, that does not mean that I am losing money. But, as a business at home, you are able to take a portion of your home expenses - no need to be a LLC. Also, if you run to the post office or store to pick up supplies, part of that is deductible as well. Standard mileage is better - unless you have a vehicle that you only use for your business.

I am not sure what is happening with Ebay and Paypal reporting. I haven't been to an update class in 3 years since my youngest came along. But, plan to return when he starts school full time.

Marty, if you aren't deducting part of your home expenses as business expenses, you may want to have a tax professional look over your returns. It may not be worth it with what they may charge you. But, when I did taxes at H&R Block, we looked at past returns for free (I think there is a fee now). But, it may give you an idea of expenses that you are entitled to. You can go to the irs website and look for either the Schedule C booklet or Business Use of Home. Or google something along those lines.

Thanks for the tips!

Thanks for the replies, I also did my own taxes starting this year, I started this ebay store in Jan. '08 so that I will have an income when I close my other business, I vend leather outerwear at motorcycle shows for the last few years and it's tough work. I have been reporting income for that business as I accept credit cards and have a traceable income and fear the worse! My tax accountant has never taken a use of home deduction, but I do claim vehicle use, phone , internet, websites, etc. and still remaining as a sole proprietor. Even though eBay and Paypal don't have to report 1099 until after 2010 they still have to comply with the IRS if asked to. Having an eBay store makes your business very visible, if you are getting emails from China to purchase wholesale, the IRS can find you also! I guess I'm chicken but it beats being fried chicken!
You can only cook so much of the books!
Sue B.

I'm told that when the IRS looks for audit candidates, it does a cross section of similar businesses and looks for the ones that stick out as different.

Put another way, the IRS will see that all ebay sellers are making slim profits, so that by itself will not be a red flag to audit.

Here is some information from the PayPal blog regarding reportable sales to the IRS.
http://www.ebaymainstreet.com/
My take on this is that as long as my sales are under $20k in 2011 my sales are not reported.

quote:

Originally posted by cassandravert:
I'm told that when the IRS looks for audit candidates, it does a cross section of similar businesses and looks for the ones that stick out as different.

Put another way, the IRS will see that all ebay sellers are making slim profits, so that by itself will not be a red flag to audit.

Here is the skinny from Forbes regarding an audit.
Here's the big implication: If the IRS sees a credit card or Paypal 1099 issued for an individual who has filed a tax return that doesn't include a Schedule C (Net Profit From Business-Sole Proprietorship) or includes one showing too little in sales, or to a business reporting too little in sales, the agency might target the recipient for an audit. If an audit target fails to produce acceptable documentation of his or her business proceeds and expenses, the IRS might well include all the revenue reported on the 1099s, disallow any undocumented business expenses and then assess taxes, interest and possibly penalties on profits a taxpayer didn't even have.

(Here's the link to the whole article.)

http://www.forbes.com/2009/03/...nternet-sellers.html

OP, tell the IRS all your bank accounts and show them the money coming in through paypal isn't much.

Lady IRS is not after anyone as long as they are honest and report. Ebay fees, etc are deductions. Get a good real tax person Not H or anyone... someone who has done taxes for year sand knows the rules. Keep good records, just download your ebay reports into excell and print them out. that shows all your fees to ebay and paypal. keep reciepts for what you buy for resale and a record of miles for your car ...
there are many more deductions but beware of counting a home office. it gets tricky. other things like computer expense, ink for printing, internet service etc are all legal deductions.
and you cna make up to 12,000 profit (if not more now) without paying tax as you get deductions for yourself and dependents. etc etc.
have fun. keep records. dont lie. simple