More and more people are turning to selling items on marketplaces like eBay and Poshmark as a way to make some extra money. While selling can be a great way to bring in extra income, there’s one crucial factor that many people overlook: taxes.
Resellers need to understand the basics of taxes and how to keep their finances organized for tax time. In this article, I’ll talk about the very basics when it comes to reselling and taxes and strategies for keeping your finances in order, so you’re not scrambling at tax time.
Important: I am not a certified tax professional, so this is not official tax advice. All I can do is present information I’ve found on reputable websites and make suggestions from my experience. Tax advice should always be obtained by a licensed tax professional.
Disclaimer: This post is sponsored by Vendoo (my favorite reselling tool!) and contains affiliate links. As always, all opinions are mine, and I only work with companies I genuinely recommend.
Do Resellers Have to Pay Taxes?
While there are many different platforms to sell on that approach this differently, if you’re in the US, it’s pretty safe to say that you do need to pay taxes on any income you make reselling.
According to the IRS, anyone selling on eBay or other online selling platform as a money-making business, has to pay taxes on what is earned. The only gray area here is that you may be able to skip paying taxes if you’re simply selling off old personal items in a virtual garage sale type of situation.
However, if you’re in the business of sourcing and buying items to resell, it’s pretty safe to say it’s taxable income.
That’s all I can really say on the legality of things because, as I said, I’m not really a licensed tax professional. But keep reading!
How to Keep Organized for Tax Time as a Reseller
What I can help you with is how to keep your inventory and finances organized when it comes to selling on online platforms so that you’re as prepared as possible when tax time rolls around, as it does every single year.
There is nothing more predictable than tax time, so why do we always struggle with it? Because we’re unprepared! Here are some tips to keep up with your inventory, records, and finances, so tax time is a breeze.
Open a separate bank account
This is so important! If you don’t already have a separate bank account for your business, this should be the number one thing on your to-do list.
Having a bank account for your business ways is the easiest way to keep track of your reselling income and expenses. All of the information is in one place without personal transactions mixed in, making it much simpler to go through.
Create a good process for managing inventory
I’m all about working smarter, not harder. Creating a good process for everything in your business, so you have to make fewer decisions is key. This is especially true when it comes to managing all the inventory that comes with a reselling business.
Because most resellers can’t instantly list items that they bring home, it’s important to have a good process in place when inventory comes into your home or workspace.
For example, if you have Vendoo, you can create a process where you create a draft for each new item as soon as you get back from sourcing. Quickly creating that draft with a short description of the item and the cost of goods ensures you don’t forget that item exists and allows you to see at a glance how many unlisted items you have in inventory.
Set aside money for taxes throughout the year
When running any type of business, it’s crucial to set aside a certain percentage of every sale for taxes. That way, you’re not trying to figure out how to pay your taxes!
How much you need to set aside will depend on your situation, as it will vary based on many factors. The important thing is that you save something. After doing this for a while, I have an idea of how much to save for my business, but before I knew, I would overshoot it and save a little extra so I could cover taxes and then just pay myself a bonus if there was anything left over.
Many online resources mention saving around 30% of your income for taxes. Because reselling has such a high cost with fees, cost of goods, shipping, etc. I personally save about 15% of my gross sales and do fine with that.
The book Profit First is really helpful in teaching you to set aside money for taxes, paying yourself, running your business, etc. so I highly recommend checking it out.
Scan your receipts and toss them
The whole shoebox of receipts thing that you see in movies? Don’t do that. And please don’t hand that to a tax pro to sort for you! You’ll get charged greatly for the work needed to process it all.
Instead, get in the habit of scanning every single receipt that you have (including all packing slips, invoices, etc). I personally scan receipts or even just take photos and upload them to my Dropbox account. You can also start a receipts folder somewhere on your computer and start a new subfolder each year to drop those photos or scans into. You most likely won’t need to reference them much, but it’ll be nice to have them handy. And much easier to manage than a box of receipts!
Start a weekly bookkeeping date with yourself
One of the best things I personally did for my business was to implement a weekly bookkeeping date with myself. Once a week on Friday, I will sit down and make sure everything from the last week is updated and correct.
This includes double checking that all of my expenses and income are categorized in Quickbooks, but also going through my sales for the week and making sure they’re all marked and recorded properly in Vendoo.
Fun tip: For a while, I would make it an official coffee date with myself on Friday mornings. I’d bring my laptop to a coffee shop and treat myself to a drink and some relaxing ambiance while I did this to celebrate making it another week as a business owner!
Selling stuff on eBay or other marketplaces is becoming increasingly popular and can be very profitable. But as with any business, selling online comes with certain tax responsibilities that you should understand before selling your items. Taking the correct steps to do things like ensure that you are aware of all applicable taxes, keeping your finances organized, and setting aside money for taxes throughout the year will make tax time a little less scary and a lot less stressful!