| There are three types of tax that you will be | | | | payroll taxes on your own salary. If you operate as a |
| responsible for when you start your eBay business. | | | | Sole Proprietorship, you pay self employment tax |
| They are 1) sales and use tax, 2) payroll tax and 3) | | | | instead of payroll tax. |
| income tax. | | | | Income tax - The final type of tax is the income tax. |
| Sales and use tax - Just about every state, and many | | | | No matter how your business is structured, you will be |
| cities and other local authorities, imposes a sales tax | | | | required to pay income tax on the business' net profit. |
| on items sold. Each state has different rules, so it's | | | | Sole Proprietors pay income tax on their personal |
| important to find out the rules in your state and city. As | | | | income tax return (Form 1040). Your business profit is |
| a seller, you are responsible for collecting and remitting | | | | calculated using Schedule C � Profit or Loss From |
| the proper sales tax to the state you live in. You are | | | | Business, and your profit is added to your other |
| also responsible for preparing and submitting a report | | | | income to determine your tax liability. |
| detailing the amount of your sales and the sales tax | | | | S Corporations file Form 1120S to report the business |
| collected. | | | | profit or loss. A Schedule K-1 is then prepared, which |
| You may also be subject to use taxes. This is taxes | | | | shows each shareholder's share of the net profit or |
| on goods you purchased out of state that you did not | | | | loss that needs to be declared on their personal tax |
| pay sales taxes on. The use tax generally applies to | | | | return. |
| items purchased out of state which would have been | | | | C Corporations file Form 1120 to both report the |
| subject to sales tax if the purchase transaction had | | | | business net profit and to calculate the resulting income |
| taken place in state. The use tax came about from | | | | tax. |
| the concern that purchasers could avoid paying a | | | | Depending on the state you do business in, you may |
| state's sales tax by making their purchases outside the | | | | also be subject to state income taxes on your |
| state. | | | | business profits. The state level taxes are often |
| Payroll tax - The second type of tax that you are | | | | referred to as franchise taxes. |
| responsible for as an eBay seller is payroll tax. If you | | | | Kristine A. McKinley, CPA, Certified Financial |
| hire employees to help you with your eBay business, | | | | Planner�, and founder of Beacon Financial Advisors, |
| you are required to withhold federal income taxes, | | | | teaches individuals and families how to invest and plan |
| Social Security and Medicare taxes, and state income | | | | for retirement, college, and other financial goals. Kristine |
| taxes. These taxes must be submitted to the proper | | | | offers financial and tax planning on an hourly, fee-only |
| tax authorities on a periodic basis (usually quarterly). In | | | | basis. |
| addition you must pay unemployment insurance and | | | | For more information on eBay taxes, sign up for our |
| workers' compensation on all employees. | | | | free special report 'Tax Tips for eBay Sellers' or visit |
| If you operate your business as an S or C Corporation, | | | | our blog. |
| you will need to setup payroll for yourself, and remit | | | | |