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What About Taxes? A Guide For New eBay Sellers

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What About Taxes? A Guide For New eBay Sellers
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You have dabbled a bit at selling on eBay.  It is fun and exciting.  You have thought about opening an eBay store.  You have tried to find products at a great price to resell,  but the wholesalers want a tax ID number from you before you can even see their prices.  You are not sure what a tax ID number is or how to get one.  You wonder if it is expensive.  Will you have to wait a long time after you apply? 

So what is a tax ID and why do you need one?

A Federal Tax ID Number is the same as an Employer ID Number or EIN.  You may not plan to have employees but you will still need an EIN for several reasons:

  • Most companies that sell their products at low wholesale prices want to know that you are a retailer.  The EIN communicates to the wholesalers that you are a legitimate retailer and they will be happy to sell you their wares at significantly lower prices than retail.

  • Trade shows!  Most will require a tax ID number to register to attend. Trade shows are one one of the best ways to meet new wholesalers and to get some great bargains.  Many of the vendors at trade shows will waive their minimum purchase requirement and some will have merchandise that is available only at the show.  Imagine, you are the only seller on eBay who sells a particular item......

  • Filing federal income taxes-  there are some tax advantages to having a home based business.  You may get tax credits for a home office, equipment, travel (to the post office and trade shows!).  You will need your tax ID number when filing your taxes to take advantage of these income tax lowering benefits.

How do I get an EIN?

Beware!  There are many scam artists out there who will get a tax ID number for you- at a price!  A tax ID number is free! Totally free from the IRS!  Using your favorite search engine, just take look for "Federal Tax Identification Number".  One of the first few results should be the IRS website.  Take five minutes to fill out an application, click the submit button and you will have it in just a few minutes.  If you are asked for money at any time during the application process, run!  You are not on IRS website.  They (beleive or not) will not ask for payment for a tax ID number.  That's all there is to it.  Really!

What about sales tax?

Sales tax varies from state to state and even within a state.  Most states require that you collect sales tax when you make sales to buyers who live in the same state where you operate your business.  The eBay listing template has a place for you to enter the sales tax rate for your state.  If a buyer lives in your state, the sales tax is calculated and added to the total amount for the sale.

So what do you with the sales tax after you have collected it?

Keep track of it!  If you haven't set up your bookkeeping for your eBay store yet, now is a good time.  There are several great products available to help, or you can use a simple spreadsheet.  Create a column or category for sales tax collected.

So you have collected it and recorded it, now what?

In some states, you will need to pay sales taxes quarterly and in other states it is annually.  If you have applied for business license in your state (advisable), you should automatically receive a form that will have a few simple questions and a place for you enter the amount of sales tax collected.  Write a check for that amount and mail it off.  It is really very simple.  And remember, you are selling worldwide.  The number of sales within your own state are likely to be relatively few and the tax will be a minimal amount.  (Our state sales tax last year was about the same cost as a tank of gasoline)

We hope you have found this bit of information helpful.  Please cast your vote for our guide below. Good luck to you!

Cheryl and the SparkleBiz Staff


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