The internet is thriving now more than ever, which is good news for online sellers. If you’re a seller on eBay, Amazon or another online retail platform, you’re reaping the benefits of society’s online fixation. Just remember while you’re raking in that online cash: taxes for online sellers can be mandatory.
You need to pay income tax on profits from sales if they surpass a certain threshold. Beginning in 2011, online businesses such as Amazon are required to file 1099-K forms for those who earn beyond $20,000 in gross sales or have 200 transactions in a calendar year using their platform.
Have you only sold a few lower-priced items on a whim this year? Maybe you posted a Beanie Baby (and not even a rare one!) on eBay and got some cash for your troubles? You don’t need to worry about taxes for online sellers if you only sell occasionally and don’t make a substantial profit from your sales. And did you sell items for less than their purchase price? Then you need not report the sales on your return.
Who Needs to Pay?
Do you have consistent or recurring sales? And do you run the activity like a business with an intention to make a profit? Then you need to pay income tax on your sales!
The income you earn is considered ‘income from self-employment’. Therefore, you must fill Schedule C, Profit or Loss from Business of Form 1040. You use Schedule C to report profit or loss from a sole proprietorship. If you don’t run a registered corporation, then you must use Schedule C to report your profits or losses.
Sales Taxes for Online Sellers
Along with income tax, you also need to pay sales tax. Especially when you sell in multiple states, you are responsible for collecting and remitting sales tax in each state. And the complex rules of each state can be wildly confusing.
Want to ensure you’re not making unnecessary payments or unknowingly neglecting your sales tax responsibilities? Our SalesNexusSolverTM is designed to analyze your sales tax responsibility and validate awareness of where in the U.S. you have nexus and the corresponding requirements.
Paying Estimated Taxes Quarterly
If you haven’t been paying taxes on your online income, you may pay estimated taxes quarterly to avoid IRS penalties and collection actions for non-payment of taxes. If you think that you’ll owe more than $1,000 in taxes in a year, the IRS prefers that you pay your taxes every quarter. The deadline for making quarterly payments for this quarter will fall on September 15. The remaining three deadlines will fall on January 15 (2019), April 15 (2019), and June 15 (2019).
To pay your estimated taxes quarterly, you may electronically file and pay your taxes through the Electronic Federal Tax Payment System (EFTPS), or fill Form 1040-ES and mail it to the IRS. You may also pay taxes over the phone.
If you have any questions about taxes for online sellers, contact one of our tax professionals who can help you optimize and save on taxes throughout the year.