Many people wonder if they are required to report the profits they earn online. The short answer is “yes”.
If you do business online, whether it’s selling on eBay, affiliate marketing, selling a service, or direct selling, it’s taxable income. This is true even if you think you just have a hobby.
Generally, any income you receive from all sources is subject to U.S. income tax unless it is specifically exempt by law (hint: online profits are not exempt by law). That means that a lot of activities that you might not think of as taxable, such as garage sale income, gambling winnings, and online businesses are taxable.
You must file a tax return if your net earnings from self employment are $400 or more. You are self employed if you carry on a trade or business for profit. If you are selling on eBay with the intent of making a profit, then you are self employed.
To report your earnings, you should file Form 1040, and attach Schedule C or C-EZ. Schedule C is used to calculate your net profit or loss from your business, which is then reported on your Form 1040.
At this point, you may be thinking “I don’t run a business; I just have a hobby”. Unfortunately, income from hobbies is taxable as well. Even worse, you can only deduct expenses up to your hobby income, which means losses are not deductible.
There are several tax advantages to doing business online. Personal expenses, such as the use of your car, home or computer may become partially deductible, retirement savings plans can shelter part of your eBay income from taxes, and you may be able to hire your family to help shift income to members in a lower tax bracket. So even if you only earn a little money online, not only are you required to report your earnings, it may even help you reduce your income taxes by taking advantage of tax opportunities available only to small business owners.
Finally, there is a common misconception that if you did not receive a 1099 or W-2, you are not required to report your income. This is not true. All income is reportable, regardless of whether you receive a form or not.
To learn more about how your online income is taxable, and what expenses you can deduct, please sign up for the free “Your Top Tax Questions Answered” teleseminar this Thursday, February 14.
Val,
Thanks so much for the heads up! So many WAHMs jump into an online business without the proper preparation, and the foresight to consider potential issues ahead, including taxability of online sales. In fact, there are a lot of unanswered questions that WAHMs sure could use to get business up and running smoothly, quickly, and efficiently. Now, when it comes to the internet, I have a recommendation for a great service that all budding work at home moms can benefit from. It’s called Office Live Small Business, and it’s brand new from Microsoft. This service is catered specifically toward home business owners looking to take their business to the net, and maintain an organized, structured business online. In a way it’s like a one-stop shop, with a consolidated e-mail platform that’s great for newsletter submissions and checking the status of sent messages as well. OLSB also comes with an easy-to-use web page designer, which means you need no prior web design experience to come up with a professional, elegant website for your small business.
I could go on, but there’s plenty of information on their website: http://smallbusiness.officelive.com
One more great aspect of OLSB is its incredible ability to gain you potential consumers and increase exposure and SEO through its AdManager, and you can check your website’s traffic reports in full detail as well! To top it all off, you get your own customized “.com” web address for free. Like I said, it comes with everything a small home business owner could possibly need to get online. From there, the opportunities are infinite! Please check it out, and if you or your readers want to know any more, my personal e-mail address is k-rosenberg@live.com. I work with Microsoft and would be more than happy to answer any questions you may have! Thanks for your time, and keep up the great work! Good luck to all the aspiring WAHMs out there!
Regards,
Kimberly