Bookkeeping and Taxes
I am NOT a tax professional. This is a description of my bookkeeping for taxes for eBay sales and is for informational purposes only. Please consult a professional if needed.
It is important to start tracking your expenses and mileage as soon as you start selling on eBay. Many people ask how to determine if they should pay taxes, and there are varying answers given based on profits, etc.; however, the answer is if you are running your eBay sales as a business, you need to pay taxes on your income, no matter how big or small.
TurboTax is suitable for various types of ownership and I have used it every year. The tax and technical support is excellent, and the program is easy to use and understand.
Items to Track
Please notify me if there are corrections, omissions, etc.
NOTE: last time I tried using the eBay apps and reports they did not meet my needs. I haven't tried to use them in a long time. Others use them and like them. I use my own spreadsheets populated by information as described below.
I prefer to use the PayPal Monthly Financial Summaries to obtain Business Receipts, PayPal Fees, Refunds/Chargebacks and possibly other information. I download a CSV file for each month from PayPal to reconcile thrift store purchases for Inventory (I mainly use my PayPal Debit Card but there may be other purchases from other accounts or cash tracked in the spreadsheet – I work from my receipts and records and just compare to the CSV transactions), obtain Shipping Amounts billed through PayPal, and other amounts. I download the files, create columns for each expense type and create a formula to capture the charges and credits in the appropriate column. Since I use my PayPal account for almost everything, it helps me make sure I don't miss anything (as well as helps me find personal expenses and budget if I choose).
Insurance Payments: payments through ShipCover will be reflected on the PayPal statement. They are separate from Sales Receipts but included in all monies received. I do not use ShipCover because it does not cover the cost of the shipping. Money received in checks from FedEx, UPS, or USPS insurance claim payments should be added to business receipts.
Note that Sales Receipts will also include the amounts received for shipping and is the gross amount (before PayPal fees).
Refunds/Chargebacks are shown on the PayPal statements (note: the refunded fees are shown in the Fees section).
Inventory Purchases: on my spreadsheet I have a column for each type of expense. I use a separate line item for mileage for each inventory trip of multiple stores – to be discussed later. I add a line and total amount for each store (or one line to include all garage sale purchases) so I can easily reconcile against the PayPal CSV file. I track my inventory details separately showing date, place of purchase, pre-tax amount, tax amt (if applicable), and desription of item. Later on I add the sales information if and when applicable.
Postage/Shipping: I use the column created in the CSV file download for a total amount, plus track any additional rare postage costs at the post office or shipping location on my big spreadsheet.
Transaction Fees: These are shown on the PayPal statements.
Ebay Monthly Seller Fees: I get this amount from the CSV file.
PayPal Banking Fees: Since there are no PayPal ATMs and I sometimes need to withdraw cash rather than wait several days for a transfer to the bank, I track my fees in the CSVfile as this is a cost of doing business with PayPal (and eBay requires a PayPal account).
Business Travel Expenses: my husband travels once or twice a month out of town, overnight for an inventory run. Actual hotel expenses and mileage are tracked, and the per diem amounts (typically only first and last day percentages) according the GSAs are tracked as well for meals and incidentals.
Tolls: Many of our routes include toll charges – since these are trips for inventory, they are tracked for business expenses.
Packaging Supplies: bubble wrap, envelopes, packaging tape, etc., etc.
Misc Business Supplies: paper, printer ink, cleaning supplies, shoe polish, lighting purchased for photos, etc.
Business Assets: this is a separate place in the tax form that includes cars, cameras, printers, phones used for business, GPS, etc. (anything over $100 goes in the assets; expenses under $100 are considered Misc Business Supplies). You will need date of purchase, cost, percent of business use.
Home Office Expenses: The dedicated space used for your business as a percentage of your total home space is deductible for whole house expenses such as rent/mortgage, utilities, insurance. Don't forget internet charges.
Communication Expenses: I use my phone mostly for business, so deduct that percentage of my monthly cost as a business expense.
Mileage: I use a mileage deduction rather than actual auto expenses for two reasons – it is a bigger deduction and it is easier to track. Include round trip mileage for inventory runs (see more below), post office/FedEx/UPS drops, trips to obtain supplies.
For my inventory runs, I have a number of set routes of thrift stores, and I track the round trip mileage in another spreadsheet, so I don't have to track mileage every time... just which route. (Ex Route 1 is 25.7 miles round trip. Route 2 is 100 miles round trip, etc.) When I garage sale or go to a place I don't usually go, I use findthebestroute.com to enter starting point (home), a list of stores/addresses, and then end point (home). This gives an optimized route as well as total mileage. If it is a list of garage sales, I just print out the route (I just cut and paste a screenshot overview map and optimized list of addresses into a document and use GPS) and keep track of purchases on the back so mileage and inventory costs maintained together.
For the post office runs, since I always drop packages the day the labels are printed, I just count the number of days I shipped items and multiply by the round trip mileage to the post office (included in my regular route mileage list) for the month. The eBay invoice needs to be viewed as well with charges being passed there for FedEx. To make sure I don't duplicate days, I just cut and paste the lines and mileage into my master spreadsheet and add the appropriate dates.