Paying Yourself?

[tgpine]

I've been selling with a free account and recently subscribed and opened an ebay store, which we aren't officially calling a business yet.  Right now it's just a hobby and gives us a little extra spending cash.  My girlfriend and I are doing this together, but using my ebay account, so I'm aware that I will be filing the 1099 each year.  My question is this, if we decide to make a business out of this, how do we pay ourselves salaries and still maintain enough funds to keep up inventory and pay expenses? Do we just not take a salary, maybe pay ourselves by splitting a commission?  We're not going to get rich by any means, but would eventually like to make this a part-time business and not just a hobby.   Any advice is appreciated, as we are totally new at this. 

[shipscript]

I believe your concern is how two unrelated people would handle a 1099 that is sent to only one party.

There are various legal entities that could be created for a partnership situation and your account could be retitled as your partnership (or a new partnership account could be created). That way, the legal entity would receive the 1099.

Or you could get an employer ID number and hire your girlfriend as an employee.

Or you could have a contractual agreement to split the profits, and when eBay sends the 1099 to you, deduct your girlfriend's half as an expense (and probably issue a 1099 to your girlfriend). Then your girlfriend would report her half of the split on her own return.

Check with your tax preparer to determine what makes the most sense in your situation.

At this point in time, you are just a sole proprietor of your business.  The money you bring in through your eBay sales will have associated expenses (cost of goods, eBay fees, postage, packaging materials, gas and mileage to the post office, etc), and the resulting "profit" will be yours to keep. There is a "schedule C" on your income tax return to report business income. You will also be paying a self-employment tax on those schedule C profits.

As an employer, with an employer ID (EIN), you would pay half of the employment tax on your employee, who would be paying the other half as a payroll deduction. I think this arrangement would require more cumbersome bookkeeping and payroll management

If your girlfriend acts as an independent contractor, you would deduct what you pay to her as a business expense. You would probably have to issue her a 1099. She might then use Schedule C on her own tax return to handle her self-employment tax.

A registered business relationship requires more paperwork, but would put you both on equal footing.

[rudy2828]

Contact a professional.