Techniques to Reduce Your 2014 Income Taxes If You Act Now
The eBay & Amazon Seller's News, November Mid Month 2014 - Volume 14, Issue No. 21
Tips, Tools, News and Resources for eBay, Amazon and Independent Online Sellers
This is a fairly short newsletter but we have another one coming out in early December that will be our only newsletter for that month. I hope all of my readers had a wonderful Thanksgiving and were able to enjoy a good meal and time with family and friends.
In the last issue I announced our Wholesale Sourcing Conference in Las Vegas with Jim Cockrum, John Bullard, Jose Calero and myself. The 2-day conference will be held in the Westwood LVH Hotel right next door to the convention center where the ASD Wholesale Trade Show is held. We are offering an early bird price of $997 for the two days for the first 50 who sign up as well as any of our current coaching students. We still have a few spots left if you act fast. But if you go to http://wholesalesourcingconference.com/ and see a higher price, that means you waited too long. The event will be held February 28 and March 1st and the ASD Trade show goes for 3 days beyond that. Hope to see and meet many of my readers there.
If you sell on Amazon internationally you know the issues of getting your funds disbursed and back into your US bank account (or vice versa if you are overseas and sell on Amazon US). Last week I learned about a company in the UK called Worldfirst.com that can save you lots of money on your currency transfers. They showed me an example whereby for every £10,000 generated on Amazon.co.uk, you will save around £150 ($235) by using World First. So if you are an international seller you may want to check them out.
I am always hearing from sellers who are looking for additional channels to sell on. Lately I have been experimenting with a site called Listia. ( www.listia.com) It's quite a bit different than eBay or Amazon in that you earn credits instead of cash, but they have a way to turn the credits into cash or gift cards. I am not suggesting it will replace eBay or Amazon, but it may be a channel you want to look into if you're interested in increasing your selling repertoire.
Jim Cockrum is offering a Black Friday sale that goes through December 5th on his videos from the CES II conference in Dallas. The offer is 90% off if you go there before December 5th. Did you miss attending Jim Cockrum's CES II conference in Dallas? Well if you did, you can now watch the whole conference -including my presentation on Videos Click here to learn how to get your set of videos. Don't wait, remember you only have a couple days left.
In my last issue I wrote about Private Labelling, which is a great way to increase your profit margins on eBay and Amazon. Jim has also just launched his Proven Private Label course. I have long been a fan of Jim's series of "Proven" courses because they are just that. He doesn't create the course until he proves the methods work with real time experience.
Lets get started with this month’s articles:
Whenever I write about tax issues I have to remind all my readers that although I am fairly knowledgeable due to my years of experience - I am not a trained tax professional. So please, if you decide to use any of these techniques, check with a CPA or professional tax preparer.
Speaking of CPAs -did you know that a tax form prepared and signed by a CPA is about 3 times less likely to be audited than one you do yourself or by a non-CPA tax preparation firm?
I have used a CPA to do my taxes for the past 25 years and (I am knocking on wood as I write this) I have never been audited. My guy is so good that his fees are easily offset by the tax advice I get from him during the year. So if cost is a factor you should take that into account.
OK - How to reduce your tax burden when you file your 2014 taxes. This first technique only works if your total sales are less than $1 million a year. There are two methods of accounting for tax purposes - the cash method and the accrual method.
If your annual sales are less than $1 million you are allowed to use the cash method. With the cash method of accounting you can take expenses when they occur. Therefore one way to reduce your profit is to purchase a lot of inventory in December. That allows you to deduct the cost of that inventory from your 2014 taxes. We all know that inventory that is tied up and not moving affects your long-term profits, so when you do this, concentrate on buying things that you know have high and fast turnover.
For example, we sell a lot of jewelry before Valentine's Day. Rather than wait until early January to buy, I buy it just a few days before Christmas. The vendors usually ship a day or so after Christmas and bill me for it then, so I can write that cost off in 2014.
No matter which method you use accrual or cash, the other thing you can do is pay all your bills in December. (If you are on the accrual method you can prepay January expenses and take them in 2014, but if you prepay any expenses beyond that you have to amortize them over the next year).
If you are planning to buy any expensive equipment such as computers or a company car you definitely want to do that in December. The reason is that expensive equipment is depreciated. And even if you bought it (and paid for it) on December 31st you can take the depreciation for the entire year.
So what this all basically boils down to is spend as much money in December as you can afford and it will reduce your tax burden in April.
One more thing, if you are planning to set up an S-Corporation or LLC, Do it in December with a January 1st effective date of incorporation. This will keep you from having to file both a corporate tax return and a personal Schedule C for part of the year. That will not only save you time, it will save you extra tax preparation fees. I use Mycorporation.com to set up corporations and LLCs. It takes about two weeks and this time of year mail can be slow, so I would go online and start the process around December 10th to make sure you get it done in time.
This is a decision I was faced with last year and that all of you who have started selling in the past few years have no doubt thought about. Basically if you sell on eBay or Amazon, growing your business larger comes down to one thing: Adding more inventory. It's a very simple formula. The more products you have -the more you will sell.
Last year this time of year we had about 450 product SKUs selling on Amazon. We decided to see how big we could grow the business this year by continually adding new product SKUs each month until the work load got to the point we just didn't want to work any longer or harder. That magic number turned out to be right around 1,000 SKUs. At the point the hours started becoming too long and we ended each week totally burned out.
Of course the answer to that is hire an employee and rent some warehouse space. But we just didn't want the hassle of doing that. At 1,000 SKUs we should break or come really close to $1 million in sales between eBay and Amazon. We felt that our profits from that were sufficient for our needs, so that is where we cut it off.
Now there are two of us and we have years of experience. If you are only one person and are just getting started, don't expect to meet those numbers. I teach you everything we do in my training course The Complete Amazon Marketing System, but no matter how good a student you are this is a business with a learning curve and you will get better and better each year with experience.
If you are young and have the capital to invest in growing your business, I still suggest you wait a couple of years until you make the decision to hire employees and expand. Why is that? Because you want to be really good at doing something before you train others to do it.
I know there are some folks who are using virtual employees to grow their business. And I know a few who are doing that very successfully - but it's not the right route for everyone -and again, although we looked into it very carefully, we decided it wasn't for us. I do use some help. In my writing business I hire copyeditors and we have a part-time bookkeeper, but that is about it. Both of those folks are independent contractors so I don't have to worry about payroll taxes, benefits and having OSHA signage all over my home office and in my bathroom.
Whatever you decide, it has to be up to you, has to fit your lifestyle and it depends on your income needs and goals. This is one of those decisions where there is no silver bullet or answer that applies to everyone. But whatever you decide to do you will be far more successful in the long run if you take your time, learn and get experience and grow at a normal pace.
Rushing into things is a sure way to lose large amounts of money. We all make mistakes. After 15 years of doing this I still make my share -but they are all small mistakes that are easy to recover from. What you want avoid is that one giant mistake that can kill your business permanently.
There are two basic types of sellers on eBay and/or Amazon - low volume and high volume. High volume sellers typically sell lower priced items with fairly small margins. But as the saying goes: "They make it up on volume."
For this discussion we will assume you are using FBA, but if you are not, you know your fees and costs are lower, but you can adjust the math to suit your business model.
Let's look at an item selling in Amazon FBA for $11.95. We will assume your product cost with inbound shipping and shipping to FBA was $4.75. The Amazon commission is 15%, or $1.79. The pick and pack and handling fees come to $2.02 and let's assume this is a fairly small and lightweight item so the weight based handling fees are 46¢. Those fees total up to $4.27. So subtract that from your Amazon selling price and you are left with $7.68. Now subtract your product cost and your gross profit before expenses and overhead is $2.93. This means if you want to earn $3000 a month you would have to sell 1,023 units in that price range per month.
Now let's look at another product that sells for more. Here is one product I sell for $144.00.
My product cost on these items is right around $70.00. So let's look at my fees:
The Amazon commission is $21.60. Order handling and pick and pack are $2.02 and the weight based handling fee is $2.12. That brings my fee total to $25.85. So my net from Amazon on that sale is $118.15. Less my product cost my gross profit is $48.15.
So, if the majority of my products are in that price range, then I would be called a low volume seller. In fact my business is a mixture of high and low prices. My goal for average selling price is $35. I have never managed to hit that, but I get pretty close. Right now I am averaging about $33.80. Why low volume - it's a simple fact that the average selling point of products on Amazon is well below $20. The more products you have that cost less than $20 the more you will sell. And, you will sell faster and in greater numbers that I do. But you have to balance the work. If you go back to that goal of earning $3,000 a month, I would only have to sell 62 blender sticks (or similarly priced products) per month, versus the 1023 units you have to sell during the same period.
It all comes down to time. If you have the resources and time to devote to your business then the low volume route is fine. To really grow you will need several thousand SKUs, which means you, will need warehouse space and some employees.
But if you also work full time, are alone without a spouse or partner to help, then you may want to work on increasing your average selling price and become a low or medium volume seller.
If you are thinking of using any of these sources to source merchandise for the holiday selling season you are a bit late. If you were to place an order today and received it in one week then it took another week to get to Amazon and be received into inventory, you would only realize about 4 selling days before Christmas. So as you shop now think of what sells in January and February and start thinking about Valentine's Day (Feb 14th) and Mother's Day (May 10th). You want to start buying now for Valentine's Day and by no later than March 5th or so for Mother's Day and the first of April for Father's Day in June.
Jewelry and fashion items are big sellers for Valentine's Day (as is chocolate). I realize that many of you who sell on Amazon are not approved in Jewelry but that category was close for a long time and is now reopened, so it's time to apply.
Alletti Jewelry sells both fine and fashion jewelry. The website is retail but email them for wholesale information
Good Morning Jewelry sells a really beautiful line of bracelets, pendant necklaces and jewelry sets.
FTH Wholesale sells a line of jewelry and sunglasses and accessories licensed with College themes.
Jane Envy sells a really nice line of inexpensive fashion jewelry aimed at the younger set and they also sell religious jewelry.
Jankuo Jewelry sells higher end fashion jewelry including wedding jewelry.
Body Candy sells a large line of sterling silver and 14KT gold body jewelry as well as a line of earrings and pendants.
Dorfman-Pacific sells an extensive product line of hats and accessories by name brands such as Scala, Stetson and Woolrich.
The Lingerie Center sells wholesale lingerie, bras, panties, corsets and more They also carry a full line of lingerie and plus size lingerie - including bras - all wholesale.
Yetts Fashion is a wholesale fashion designer and manufacturer. Click on the register link to register and see the wholesale pricing.
Wholesale Fashion Inc. sells a wide variety of fashion jewelry, bags, and apparel. They offer free shipping on orders over $200 and a $50 discount on orders over $500.
Alabama Wholesale sells a wide line of socks all made in the USA. Click on the link that says Wholesale Info to learn how they work. Their minimum order is just one dozen socks and they accept both credit cards and PayPal for payment of wholesale orders.
Texas Leather manufactures a line of high-quality leather handbags.
Well see you again in about ten days. We only do one newsletter in December so I will do my best to make it a good one.
P.S. If you missed the last issue, click here to read it.
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