Are You Wasting Your eBay Profits?
Usually these articles are geared toward helping you make more money from your auctions, but since it's tax season, I thought it would be good to share some ways to help you keep your earnings.
I met with my accountant yesterday. While I could surely do the taxes myself, the accountant is worth every penny I pay him.
I use an accountant for three reasons:
- He is conservative and keeps me from going too far with my deductions. Not that I'm cheating on my taxes, but I tend to take the quick-and-easy approach. For example, I guessed the portion of my house devoted to my home office; he, on the other hand, takes the square footage of the spare bedroom I use and divides it by the total square footage. He says if there is a problem with the IRS, showing we did the math will make it easier. That advice allows me to sleep easier at night.
- By setting an appointment to meet with him, I have a deadline. The only thing I hate more than sending a check to the IRS is getting everything together for the accountant. If I didn't have an appointment, I would put it off until the last minute and then do a rush job.
- He helps me spot the business costs and deductions I might overlook, and the extra time allows me to gather the information I need.
At this point, maybe I should define the term "accountant" and tell you how to find one.
First of all, H&R Block is a tax preparation service; they are not accountants. An accountant helps you understand the costs of your business. He or she should know how your business runs and know you. You build a relationship with an accountant, and he becomes a trusted advisor.
The best way to find an accountant is to ask other business owners for a referral. Try to find one who deals with similar businesses because he will be more familiar with your business.
Before I get into specifics, let me put a little disclaimer here: I am not an accountant; I am just a small-home-based business owner like you. While I am going to give you examples based on my business, you need to turn to your own accountant for advice.
I've already told you how to find an accountant, so let's get down to keeping as much of your money as you can:
First of all, expenses are good because they lower your net income and drop your Social Security and Medicare payments; you have to pay 15.3 percent of your net income to SS and Medicare. Expenses also drop your income taxes proportionately -- so if you're in the 25-percent tax bracket, every dollar of expense lowers your taxes by a quarter.
Some common expenses you might be missing are:
- MILEAGE.You can deduct the cost of using your car for business. The IRS wants a log, which I hate making. What I do is keep all my receipts so I know everywhere I went, and as tax time approaches, I sit down one weekend and reconstruct every trip I made. The receipts prove I went somewhere, and I can do a quick search on Google maps, using my address and the destination address, to find miles traveled.
In two hours, I found almost 800 dollars worth of mileage I had already paid out of my pocket. That two hours saved me 120 dollars in SS and Medicare plus a bunch of income tax. I spent it, so I might as well claim it
Now, I know I'm missing trips (if I didn't spend any money, I don't have a receipt), but I'm not good about keeping records, so this is a fair trade-off for me. If you train yourself to be a good record keeper, you'll save a lot more. You can buy a book for keeping track of your miles in any office supply store.
- SELLING EXPENSES. Postage, eBay fees, packing supplies, printer ink, pencils, and basically everything you buy for your business is an expense. I have an accordion file with monthly dividers I put all my receipts in. The file cost about 10 dollars at an office supply store and makes it easier to keep everything organized. And don't forget to put the receipt for the accordion file in there! It's an expense, too.
Every now and then, I enter all my receipts into QuickBooks. I use the cheap version of QuickBooks; it's good enough for my needs. I also try to run everything through the business checking account so there is a record on my bank statement.
- COST OF GOODS SOLD. When you buy something for resale on eBay, it's a cost. If you're doing second-hand reports for your local government when you buy used items, they will work as receipts. If you don't do second-hand reports, you can use file cards with the seller's name, address, phone number, amount paid, and a short list of what you bought. If you pay the seller in cash, write a check from your business account to cash to replenish your cash reserves.
- OFFICE EXPENSES. I work out of a bedroom set up just for my business. That's deductible. Note: You cannot use the room for other purposes and claim it as an expense; so, in other words, you can't put a table or a daybed in the corner.
Other office expenses are your computer, internet account, digital camera, website, autoresponder, telephone, lighting for taking pictures... you get the idea. Anything you use in your office and bought specifically for use in your business is an office expense.
- ADVERTISING. If you are running ads to buy items for resale, it is an expense. If you're not running ads to buy used items for resale, you probably should be. I'll be releasing the new, updated Collectible Buying System in the near future, and you can learn how to run ads.
- MEALS. This is one you might be missing - but be aware, the whole meal bill is not deductible; only 50 percent counts, and there are other restrictions. An example of a meal you can expense is having lunch at Denny's in order to network with someone you met at a garage sale. Your accountant can give you more information about claiming meals as deductions.
- EDUCATION AND RESEARCH. If you subscribe to the eBay Mastermind series or you bought one of my ebooks, you can write these items off as expenses. You can also claim as expenses your subscription to Antique Trader magazine and price guides related to antiques.
One note before I go on:
A lot of people mistakenly think
just because an item is a tax deductible expense it's free. That is definitely not true.
Let me explain: Say you're in the 25-percent tax bracket. With Social Security and Medicare, you'll pay 40 percent of every dollar of income in taxes. So if you buy something for a dollar, you're not really saving 40 cents. You're just giving it to someone other than the IRS along with sixty cents you could have spent on something else.
Let me give you an example:
Last year my monitor broke. I have to have a monitor to run my business. (For those of you who complain about my spelling errors, imagine what this would look like if I couldn't see what I was typing!) Anyway, there are different kinds of monitors in different price ranges. I could have bought a big, bulky CRT monitor for 100 dollars or a huge, space-saving flat screen with fantastic screen resolution and a fast refresh rate for 700 dollars
I compromised and bought a 300-dollar, good-enough-for-what-I-need, flat-screen monitor. It gives me the same desk space as the expensive model and leaves me quite a bit of money for my other pursuits. Sure, I have to pay tax on that other 400 dollars, but it's still sitting in my wallet and I get to use it for anything I want.
Now that we've discussed lowering your taxes, let's talk about
raising your income.
Your income is a direct result of your skills. What exactly have you done in the past year to increase your skills?
Listing more items is not building skills; it's repetition. Listing items and then analyzing the results is a way to improve your skills, but it takes time -- and learning as you go means you'll make expensive mistakes.
The good news is, you're on the right track, because reading this newsletter is a great way to improve your skills (and it's free!).
There are other free ways to improve your eBay selling skills; for example, I've put a lot of valuable information on this website. Spend an hour or two reading the articles and you will certainly improve you skills.
But there's a better, faster way to become a skilled eBay seller: learn from someone who has spent years improving his skills.
Someone like me.
My Auction Revolution package is based on selling over 12,000 items on eBay. I was one of the first big eBay consignment sellers. I learned the hard way -- one auction at a time. I've already made all the mistakes so you don't have to.
You won't have to sell thousands of items on eBay to figure out the best techniques, because the Auction Revolution lays them all out for you in an organized, step-by-step manner. It explains how to host your own eBay images, what eBay listing options are worth using, and everything else you'll need to know to maximize your eBay profits.
More importantly, you'll also learn how to drive people from your auctions to your websites through your eBay "Me" page. You'll even get a special free report you can personalize and offer on your "Me" page as an incentive to check out your website.
Remember, I spent seven long years learning everything you will
learn in the Auction Revolution.
Find out how the Auction Revolution
revolutionize the way you look at eBay
That's all for now,
PS. If you've already got the Auction Revolution, it's time to
start "Moving Beyond eBay." I recently released a package to
help you go from eBay seller to online entrepreneur. You can
find out more about it at:
"The IWantCollectibles Guide to Ebay Sales"
is now available for immediate download.
No email or credit card needed. Just grab your copy.
After reading. . . Pay Only What YOU Think It's Worth.
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