Small business or not? Plus taxes

[dbertic22]

I started selling on eBay in March so I am new to this. I strictly just buy and sell sports cards. I just have a few questions I am unsure about.
My sales increased recently and I have $46k in items sold out of 2k items. Should I apply for a small business at this point?

When it comes to paying taxes next year on my profits. What is the best way to prove the money I spent on these cards and proving the profit I made on them? 

Also I sold a bunch of baseball mystery packs and lots of cards. Is that hard to prove also? I’m guessing the mystery packs will be tough since there’s different cards in each pack. I did buy lots of cards in bulk to put in these packs. So selling a mystery pack for $15, I probably only made $3-$5 on each pack so I was just curious the best way to prove my expenses for those. 

Anyone that could help me would be greatly appreciated. I know I asked a bunch of questions but I know the eBay community is very helpful so I thought I would just ask and see if anyone knew about this. Thank you so much!

Dave

[nobody*s_perfect]

I don't know what you mean by "apply for a small business."

IRS doesn't care whether you're a business or not: You deduct all your expenses and pay tax on the net profit.  You can deduct the original cost of the items sold, as well as postage, eBay and PayPal fees, etc. Save all your receipts in case you're audited.

Take a look at IRS Schedule C and its instructions to get a better idea about how they look at this.

[southern*sweet*tea]

You need to be gathering all your receipts and consulting a tax professional or CPA. $46k is A LOT of sales for someone just starting out - that's almost twice mine and my hubby's annual income.  You will need all your ducks in a row or you will wind up paying tax on everything.

[dbertic22]

Thank you for the responses. I bought a bunch of cards early in March. Card prices went up like crazy so I decided to sell them. Then continue to just buy/sell. Everything I bought was from eBay so all my receipts are on eBay. What is the best way of putting all that together to show the IRS? Like an excel file? Everything is on the computer and on my eBay account for my expenses. Thank you I appreciate your help. 

[nobody*s_perfect]

You should make sure that you have receipts for  your payments, not copies of the eBay listings. In most cases, that would be the list of transactions in your PayPal account.

You don't need to show anything to the IRS unless you are audited, and the chances of that are very small. Be honest and as complete as you can be, but don't lose sleep over it. I suspect that an excel file wouldn't count for much since you could make it up.

[dbertic22]

46k is just items sold. It’s not all profit as I bought a ton of cards. I am new to this so I was just wondering if I am buying cards on eBay and reselling them. How do I show those receipts if it is all on eBay? I am new to this so I’m sorry if this is a dumb question. 

[dbertic22]

So my question I guess is how do I show the receipts if all my inventory is from buying on eBay? You said the transactions are all on paypal so I would print out a report from PayPal?

[dbertic22]

To show my receipts to prove my expenses I mean sorry not the IRS. I said that wrong. 

[gracieallen01]

Though the IRS really hates it, just put all your receipts - buy, sell, expenses - in a box (be nice and do it by year) and put them in a safe place.  Use the receipt totals to fill out and file your Schedule C.  Unless the IRS looks at your return and sees something missing or really askew, they usually won't audit and after 10 years, just to be safe, you can probably get rid of that particular year.  Being a 'business' is basically for the State (depending on the state), for state income tax deductions, not having to pay tax on business purchases, etc.

[myboardid]

To be clear, you should PRINT OUT individual receipts on paper. 

[gracieallen01]

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@myboardid wrote:

To be clear, you should PRINT OUT individual receipts on paper. 

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Very true! 

Often one leaves out such points because 'of course, one should - doesn't everybody know that'.  What one thinks is understood may be completely foreign territory for another.  My bad.

[dbertic22]

Yeah I’m sorry this is new to me so sorry if this is another dumb question. So I need to have an individual receipt of what I paid for each item that I resold to determine my profit that I will be taxed on? That is what my question was and sorry if I didn’t word it the right way. If I bought 1500 items that I ended up reselling, I need 1500 individual receipts to prove what my profits were? I appreciate it. I am just trying to learn and prepare for when I have to pay taxes on the items resold. 

[luckythewinner]

Should I apply for a small business at this point?

It looks like you are in New Jersey. According to this website, you should already have done this.

("Registering your business is a key part of getting up and running. All companies doing business in New Jersey need to register with the State.")

https://business.nj.gov/category/start?locale=en

What is the best way to prove the money I spent on these cards

The best way to prove what you paid for an item is to provide a receipt (or the eBay transaction) where you bought the item. 

and proving the profit I made on them?

The best way to prove what you sold them for is to provide your eBay transaction history. The best way to prove the profit is to file a Schedule C and summarize your income and expenses. 

 I did buy lots of cards in bulk to put in these packs. So selling a mystery pack for $15, I probably only made $3-$5 on each pack so I was just curious the best way to prove my expenses for those. 

I would add up the cost of the bulk purchases, and divide by the total number of cards  in the bulk lots. That will give you a "cost per card". Multiply this "cost per card" by the number of cards in the mystery lot.

For example: If you bought 10,000 cards in bulk from various sources for a total of $1,000, that is 10 cents per card. So if a mystery lot had 50 cards, that would be a cost of $5 for that mystery. 

Again, providing receipts or transaction history for the bulk lots would be best. 

[nobody*s_perfect]

You would need 1500 receipts if you made 1500 purchases of things to sell.  If you bought 100 packages and broke them up and sold 1500 items separately, then your purchases would have 100 receipts. The idea is to document your expenses.

I disagree with the necessity to keep paper records. As noted, the chance that you'll need them is small. Just keep the documents as files or scans on a drive or in the cloud or something like that so you can print them out if necessary. 

I have been audited by the state and they accepted just the printed-out list of my PayPal transactions, not a separate page for each purchase and each sale.

[soh.maryl]

He could be asking whether or not he should open a store on eBay.