*Originally posted on JasonsJigs.co*
A few disclaimers before I get going:
- I am not a CPA. I am offering you advice from the point of someone who has been self-employed for 7 years.
- Any advice provided here is strictly just that, general advice, and any tax or legal issues should be addressed with an appropriate person
- This probably isn’t the best format for something like this; perhaps I’ll put together a podcast or video later on.
End of January / early February usually means if you are due to receive an IRS form 1099-MISC from a payment processor, such as PayPal or Stripe, among others, you should be receiving it soon.
With that said, the first thing I need to instill is that all income should be claimed. Just because you did not receive a form, does not mean you do not have to pay taxes on that income.
Often, persons engaging in reselling talk about the $20,000 and 200 threshold – which is the point at which PayPal specifically triggers a form 1099-MISC to be issued on your behalf. This typically means that for accounts that process a minimum of $20,000 in sales AND 200 individual transactions, you will be provided with 1099 form that is found within the Tax Documents section of PayPal. While I have heard of people being issued a form without having both of those thresholds, I personally have not experienced that, so I can’t speak to every situation. But again – regardless of if you receive a form or not – you should still be filing taxes with resell income attached.
What has become evident to me over the years of being on Twitter is that a lot of those in the reselling community don’t even really understand income taxes, let alone know how to implement them. Recently there was someone talking about StockX charging sales tax, and he was incorrectly flipping out about who should be collecting tax. Please don’t be that person – and hopefully this section will help clear that up a little
Income taxes when it comes to reselling is the portion of your PROFITS that is due to be provided to the Federal Government. The specific amount is based on a personal tax rate.
Let’s say you bought a pair of shoes for $100 and turned around and sold them on GOAT for a net of $200 after fees. This means your profit is $100, and the amount of taxes you will pay is based on $100, the profit, and not the $200 sale price. In a perfect world, you would be conducting some sort of tracking that shows total purchases and total sales, without having to do this on an individual basis.
Ask around on Twitter, plenty of users will share a sales tracking spreadsheet with you. I had one years ago but stopped caring, so ask someone else.
Please note – sales tax has NOTHING to do with income tax. This was a source of confusion a while back. Business collect and remit sales tax to local governments. Just because you paid sales tax on an item doesn’t mean taxes have been paid and therefore you shouldn’t be paying taxes again. As stupid as it is for someone to have to explain that, plenty of people clearly do not understand that.
When April comes around and tax filing day is here – I really wouldn’t spend money with a CPA or anyone else to file your taxes. Online based programs like H&R Block, Turbo Tax, Tax Slayer, or Tax Act can take care of everything you need, usually for under $100. All of these programs are really self explanatory and guide you through the process the entire way, making it pretty easy and convenient. You will essentially just be asked to enter 1099 information if you received one. If you didn’t, again, you should still be reporting and paying taxes. If you enter in your net sales via a 1099, then all you will need to enter are your expenses.
Those expenses could and should include:
- Amount you purchased shoes for
- Cook Groups
- Any amount you paid for advice from someone
- Shipping boxes and supplies
- Returns / Fraud issues
- Miles driven to and from post office or meetups
These can often add up to a pretty decent amount, limiting your overall tax liability.
Now, let’s say you spent the last year selling shoes and not caring about taxes. It’s honestly not that big of a deal, especially if you set yourself up for taxation and financial success going forward. A lot of folks are scared of the IRS, but they’re a pretty helpful organization – if you have an outstanding tax liability, pick up the phone and set up a payment plan. They will usually let you spread that out over 5-7 years without a problem.
Hopefully this answers some questions, and maybe even inspires more. Hit me up on twitter and I’ll be more than happy to answer anything else that I feel qualified to answer. As it gets closer to tax filing deadline, perhaps I’ll revisit this in a different format.