Income Taxes on Your Online Business – Some Tips to Help
The eBay & Amazon Seller's News, January 21, 2016 - Volume 17, Issue No. 2
Tips, Tools, News and Resources for eBay, Amazon and Online Sellers
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Karen and I have enjoyed a beautiful timeshare condo at Atlantis in the Bahamas for the past few years. We have week 5 which is the first week of February each year. But lately as we live on the West Coast we find the travel distance is a bit much so we have decided to sell it. I have just listed it on eBay. Please check out the listing here.
USPS Priority mail rates are increasing by 9.7% and UPS and FedEx have announced a 4.9% rate increase which went into effect last month on December 28th. However, if you are an Amazon Merchant Fulfilled seller, Amazon has made a deal with USPS to cut their rates by 10% for Amazon sellers. You can find information about this in Seller Central.
In the last issue I had a bad link for TaxJar, the service that helps you with your sales taxes. Here is the correct link. (Note - I am also an affiliate of TaxJar.)
Private Labeling is hot -and highly profitable, but there are a lot of ins and outs to being successful and there can be quite a bit of risk -I know, I lost a lot of money on my first two PL products because I made some stupid beginner mistakes. One of the experts in private lableing is Ryan Reger. Ryan runs a PL mentoring group MM8 with several other folks who are well experienced in the field. The group has been closed for a while but recently re-opened. Click here to get information.
Jenni Hunt is also teaching PL and she is giving away two free eBooks.
(Full disclosure - I am an affiliate of this group and earn a commission if you sign up but that does not affect your price or what you get).
Teikametrics did an excellent webinar on Amazon Marketplace Trends. If you missed it, here is a link to view the recording.
eBayProduct Flipping - Are you buying items from eBay and then re-selling them for a profit? If you want this to work well, you must have a tool that will search eBay continuously and automatically and send you alerts as soon as the items you want get listed on eBay.
There’s a free eBay search tool designed specifically for this purpose. It is for re-sellers and collectors that buy the same types of items again and again and want to get newly-listed items before their competition does. It provides free email and text message alerts. And because it’s a web-based service, there’s nothing to download or install.
You can Click
Here to check it out
Did you know that Amazon now has over 1000 of their own branded delivery trucks? In fact, one of them was truck-jacked at gunpoint in Miami just a few days before Christmas
Reminder Fulfillment by Amazon U.S. Fee Changes Begin February 18, 2016 (requires Amazon Seller account login).
Lets get started with this month’s articles:
Federal Income Tax season is right around the corner. If you file on April 15th you should start preparing now. Of course, you can file for an extension. According to my CPA, who is a former IRS manager, filing an extension lowers your risk of audit because later in the year most agents are already scheduled through the end of the year with other audits.
Before I go any further, I want to point out that I am NOT any type of tax expert. I have a lot of experience with business and business taxes, but you should always rely on a professional and check out anything I tell you.
If you do file an extension, and you think you are going to owe money, then you want to send that money in with your extension to avoid penalty and interest charges when you do file later. I did that last year, but I underestimated what I would owe and it cost me over $300 in extra taxes.
The first step to preparing taxes for your business is to log into Amazon (and PayPal if you use eBay) and download your 1099 form. This is the form that Amazon and PayPal send to the IRS that shows them what they paid you. You will need to submit a copy of your 1099 with your taxes. These forms are usually available near the end of January.
A lot of new sellers misunderstand the 1099 and how it works. If your 1099 said Amazon paid you $190,000, you do not owe taxes on that amount. You only pay taxes on your profits.
This means you look at the total amount of sales you made, then subtract your Cost of Goods sold which includes product cost, inbound shipping, Shipping to FBA if you use that, your eBay, and Amazon fees and this gives you your gross profit. Now, set up a worksheet and subtract your business expenses and that will give you your net profit. (If you sell on eBay you will also have PayPal fees, but you can add those to your bank Services charges in the expense list below)
Here is a sample worksheet. Your expenses will be different - this is just a very simple example of a typical worksheet.
*Under business travel you used to be able to deduct 57¢ per mile for mileage driven for business purposes, but in 2016 when you do your taxes it dropped to 54¢ because of lower gas prices. But you can still deduct 57¢ when you do your 2015 taxes.
As you can see, although your total sales (the amount on your 1099) was $190,000, your net profit was only $58,795. This is the amount you will own taxes on. (Note - I have taken some shortcuts to keep this simple, and there are some adjustments you will have to make based on your inventory, so do this with a tax professional).
Let mention a few things. Under Labor that covers independent contractors (such as my bookkeeper and copy editors I hire). Meals and entertainment is marked at 50% because that the portion the IRS allows you to deduct. Professional fees would include your CPA's fees for doing your prior year taxes, any attorneys, your webmaster or anyone else you pay to help with your business. Third party services would include services like JoeLister, Feedback Five, listing services and so on. All of those are business expenses.
We keep all our records in QuickBooks and we have a bookkeeper who comes in once a month and does this for us and then we send everything to a CPA who does our taxes. Here is another tip: CPA's are not cheap, but statistically you are less likely to be audited if you use a CPA instead of doing your taxes yourself, or using a non-CPA tax service.
A good CPA can help you in other ways as well. One of the things I do every year is meet with my CPA and go over our business and he give me advice on things I can do differently to lower my taxes. I have found over the years that the money I save on taxes easily covers the fees I pay my CPA.
One last piece of advice. Keep all of your business records, bank accounts and credit cards separate from your personal side and never mix the two. This will make your life much easier at tax time.
Amazon recently updated their policy on reviews and its important that you know the rules as you can get your account suspended if you violate them. Here is the new policy from Amazon:
Note that one of the reviews Amazon does not allow is when a competitor posts reviews to hurt your sales. This has happened to me and when I reported it Amazon investigated and removed the review.
I rarely repeat articles but this is one I wrote about a year ago and it is one of the issues I often get questions on, so I thought it would be helpful to run again especially as private labeling so so hot right now.
Most sellers do not know that there are two ways to private label: Formal and Informal.
Formal private labeling is when you apply for and receive a trademark for your brand and register your trademark with the US Patent and Trademark Office. This allows you to use the ® mark next to your private label name.
Informal private labeling is when you think up with a brand name and start using it, but you do not trademark or register it.
Surprisingly there is no law, or Amazon policy, that says that a brand has to be trademarked and registered. The downside to this is, without trademark protection your brand cannot be protected.
I have two informal brands (one of them is in the TM application process) that are not registered -and although I have been using them on eBay and Amazon for over two years, I have only had two people try and poach on my listing. And, when I emailed them and said this was my brand, one of them ignored me and the other pulled his listing.
Not everyone knows that if you are a brand holder you can register your brand with Amazon, which gives you some protection from poachers. What I wondered was, can I do this with an informal brand or would it have to be trademarked? So I asked Amazon and got a surprising answer.
If you are doing, or thinking about doing, any private labeling, be sure and read this response very carefully. Please note, to see the links Amazon refers to, you need to first be logged into Seller Central…
Here is the response from Amazon:
I found that very interesting! So I started the process to register my other two brands with Amazon in addition to the two that I already have both or which are already trademarked.
High sales conversions (Making sales) on eBay and/or Amazon is the name of the game. To do this you have to learn how to create great sales pages. Most of the information in this article applies equally to eBay and Amazon but where it differs I will point that out.
The absolute first item is a great title. A great title does three things.
This can be tough on eBay and in some categories on Amazon (like jewelry) where the sites limit the number of characters you can use. So what I like to do is make up my titles in a Word doc. This allows me to play with the title and there is a feature in Microsoft Word that will give you a word and/or character count.
After the title, Amazon uses product bullets. Here is an image of what those can look like.
(Just a FYI note - This is one of my private label products (The Smart Kitchen is one of my PL brands).
I use the bullets to both provide additional and important information and to state the benefits of the product. When I create my eBay listing I also often include the bullets from my Amazon listing.
After the title and bullets a really important item is the photo. (You can't see it in the image above but this product has two photos although on most products I shoot for 4. Amazon and eBay both have minimum size standards for photos so they can be zoomable. On Amazon the image must be at lest 1000 pixels on a side. On eBay its 650, so if you make your image Amazon compliant it will work on eBay also.
Next is the Product Description - Whether its eBay or Amazon the way I approach a product description is try and imagine what possible questions a potential buyer would have about a product and then I make sure to answer all those questions. I write my descriptions in the first person and use a conversational style. I also try and romance the product and include any anecdotes or stories related to the product.
Many people mistakenly think that product descriptions should be short. I tend to write long product descriptions. I have tested them against short ones and the longer ones convert better.
Lastly is keywords. Amazon looks for keywords in two places -the title and the keyword field. eBay looks in three places -The title, the first 100 characters of the description and the item specifics. Since eBay looks for keywords in the first 100 characters of your listing, be sure and avoid saying something like "Welcome to my auction," or "Thank you for looking at my item." I see phrases like that on eBay all the time and the sellers are wasting great keyword possibilities.
I use a service called Merchantwords to find the best keywords. Merchantwords is optimized for Amazon but I have found the same words work just as well on eBay. Merchantwords costs $29 per month but if you use this link you can get it for just $9 a month.
Over the years, one of the things I have noticed is that online sales seem to track the stock market. And since the first of January, the US stock markets are off almost 10%, with other world markets in even worse shape. That may explain why my eBay and Amazon sales are having the worst January in several years. Of course, by the time this newsletter actually goes out (I work on my newsletters about a week before they are published), the market could turn around, but most of the business and investment publications I follow seem to think we are in for a rocky year on Wall Street. If that happens I am pretty sure we will see lower sales.
There is also a real danger of another recession. First of all, historically recessions happen about every 8 years and it has been almost 8 years since the last one. Secondly corporate profits are off and consumer spending is down. Even the behemoth Wal-Mart announced they are closing over 200 stores and laying off over 10,000 people.
In the last recession (which was also one of the worst since before World War II), my eBay and Amazon sales dropped more than 25% and profits even more than that. I don't think this one will be that bad - but you never know.
With gas prices low, people have extra spending money, but for some reason consumers are not spending it. One exception was new car sales which broke records in 2015, but even those have now slowed down with the start of the new year.
And then there is the fact that the economy is not that strong to begin with. Yes, unemployment is down to the 5% range and millions of new jobs have been created, but workforce participation is at its lowest levels since the 1970s, and median income has actually fallen over the past 8 years since the last recession. Also taxes are now higher at both the state and Federal level which also reduces incomes.
So yes, I personally believe another recession could be in the cards. But what can sellers do about it? When a recession hits there are always a few areas that are recession proof. Here are a few examples:
So there you have it. You may disagree with me -and I could even be wrong, but if we do go into recession, those bullet points above could help keep your head above water.
Valentines Day is coming up soon, so here are a few jewelry suppliers, but order right way as there is not much time left.
Planet Silver is a wholesale sterling silver jewelry exporter in business for over 15 years. Located in Bangkok, Thailand.
Hip Hop Jewelry Wholesale sells shamballa bracelets, Grillz, Pendants, Watches, bling earrings and Chains at wholesale prices.
Ruby Imports is a fashion jewelry and accessory importer with a large line of products from several manufacturers.
Ippo Jewelry sells a large line of fashion jewelry. This is their Facebook page but you can contact them through there for wholesale information.
Ok - Lets move on to some regular sources
Swanson Christian Products is a 73-year-old manufacturer, wholesaler and distributor of Christian gifts, framed art, apparel, novelties, church supplies and custom logo items for Christian retailers.
Swag's handbags business began in 2007 when Cheri Kalb had some ideas for new handbag designs. Over the years Swag has added many categories of accessories including necklace sets, bracelets, earrings, rings, hair accessories, sunglasses, hats, kid's jewelry, ponchos and scarves.
The Tibet Rug Company sells quality Tibetan rugs currently being manufactured on a commercial scale produced in Nepal by Tibetan refugees.
Captiva Ltd. Sells home accents, furnishings, home decor, lighting accents, lanterns and luminaries, and more.
Brainstorm is an art print and illustration studio started in late 2007. They cover subjects like science, the outdoors, food, and travel.
Little Drops of Water makes and sells Catholic statues, made from polyresin with 3.5" height.
DBC Wholesale sells wholesale craft supplies- silk flowers, berry garland, grapevine angel and more.
That’s it for now - See you in two weeks.
P.S. If you missed the last issue, click here to read it.
© 1999- Harry McGrath, Inc., DBA Skip McGrath, Auction Seller's Resource and Vision-One Marketing. All Rights Reserved.
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