Tax questions for sellers with 50k or more in annual sales

[looksgoodfromhere]

Hello all!

Happy New Year! 

  I’m just wondering if anybody cares to share or offer any tips and or suggestions as far as 1099K forms go for sellers above the threshold.  I feel like all the tax advice is for the small time sellers (for hobby) not income. I plan on hiring a CPA however, I’d love to do some prior research on my own and better understanding. I cannot locate even one YouTube video for DIY for sellers that sell at a higher bracket  thank you so much in advance 

[luckythewinner]

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@mr_lincoln wrote:

-You will need a beginning and ending value of your inventory 

OMG don't fall into the trap of accrual accounting or accounting for your inventory unless you have to.

If your business does less that $27 million a year, you can use cash basis accounting and treats inventory as non-incidental material or supplies.

See IRS publication 334 for an explanation of treating inventory as non-incidental material or supplies, if you can do this it will save you a lot of grief.

"If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid or incurred to acquire or produce the inventoriable items treated as non-incidental materials and supplies in the year in which they are first used or consumed in your operations. Inventory treated as non-incidental materials and supplies is used or consumed in your business in the year you provide the inventory to your customers".

[dbfolks166mt]

OMG don't fall into the trap of accrual accounting or accounting for your inventory unless you have to.

.    Agree 100% on avoiding inventory reporting if you are able to do so under the exclusion. Not so much on the accrual accounting. I have always declared accrual accounting on my schedule C because of the simplicity of doing so. Your own personal accounting method covers not only the eBay portion of your reporting but all other aspects as well. Since I use the accrual method I account for revenues and expenses at the time they are recognized or incurred rather than when the cash flows. Cash accounting can become complex in the last couple of months of the calendar year since revenues and expenses are recorded based on the flow of the cash. If you purchase something in November of 2023 and put it on your CC, pay your statement in late December but the funds are not taken from your bank account until January 2024 with cash accounting that is a 2024 expense, with accrual it's a 2023 one. 

[chapeau-noir]

FWIW, I exceeded 50k/yr and just use TurboTax home and small business.

[mam98031]

I use the Cash Accounting method not Accrual Accounting.  Far easier for me.  IRS just wants you to be consistent.  Pick a method and stick with it.  

This IRS publication can help a new seller to decide what method is best for them.

https://www.irs.gov/pub/irs-pdf/p538.pdf

Exception for Small Business Taxpayers
If you are a small business taxpayer (defined below), you
can choose not to keep an inventory, but you must still
use a method of accounting for inventory that clearly reflects income. A small business taxpayer can account for
inventory by (a) treating the inventory as non-incidental
materials and supplies, or (b) conforming to its treatment
of inventory in an applicable financial statement (as defined in section 451(b)(3)). If it does not have an applicable financial statement, it can use the method of accounting used in its books and records prepared according to
its accounting procedures. See Regulations section
1.471-1(b). If, however, you choose to keep an inventory,
you generally must use an accrual method of accounting
and value the inventory each year to determine your cost
of goods sold.

[mam98031]

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@chapeau-noir wrote:

FWIW, I exceeded 50k/yr and just use TurboTax home and small business.

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That is the way I do it too, for years.  It has served me well.

[dbfolks166mt]

I use the Cash Accounting method not Accrual Accounting.  Far easier for me.  IRS just wants you to be consistent.  Pick a method and stick with it.  

.    Glad the cash method works well for you, it does for a lot of businesses especially smaller ones or individuals. I am just the opposite however since I have way too many expenditures that occur in one calendar year but the cash does not move until the next calendar year so I simply use the accrual method rather than trying to follow the cash flows for hundreds of expenses. 

     There are pro's and con's to both which is why I suggested this be one of the things the OP talk to their accountant about. 

[mr_lincoln]

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@mam98031 wrote:

I use the Cash Accounting method not Accrual Accounting.  Far easier for me.  IRS just wants you to be consistent.  Pick a method and stick with it.  

This IRS publication can help a new seller to decide what method is best for them.

https://www.irs.gov/pub/irs-pdf/p538.pdf

Exception for Small Business Taxpayers
If you are a small business taxpayer (defined below), you
can choose not to keep an inventory, but you must still
use a method of accounting for inventory that clearly reflects income. A small business taxpayer can account for
inventory by (a) treating the inventory as non-incidental
materials and supplies, or (b) conforming to its treatment
of inventory in an applicable financial statement (as defined in section 451(b)(3)). If it does not have an applicable financial statement, it can use the method of accounting used in its books and records prepared according to
its accounting procedures. See Regulations section
1.471-1(b). If, however, you choose to keep an inventory,
you generally must use an accrual method of accounting
and value the inventory each year to determine your cost
of goods sold.

---

@mam98031   You hit a key point on filing taxes for something like selling online ... be consistent, pick a method for certain things and stick with it.  

[mam98031]

@mr_lincoln 

That method can actually serve us well in all kinds of things.  Being consistent can help you find problems with they arise and all kinds of different things in our lives.  Its also good for our sanity to set up procedures for ourselves to follow.  It just makes all kinds of things in life easier IMHO.

[looksgoodfromhere]

So much advice and key points, I’m more confused then ever. I need to find a CPA who is familiar with eBay’s process etc. I had a virtual appt with one at H&R Block and it was so awkward! She was so inexperienced and clueless   Let’s see what Google turn up when searching “CPA for e-commerce 

thank you all!!!!!

[kensgiftshop]

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@looksgoodfromhere wrote:

So much advice and key points, I’m more confused then ever. I need to find a CPA who is familiar with eBay’s process etc. I had a virtual appt with one at H&R Block and it was so awkward! She was so inexperienced and clueless   Let’s see what Google turn up when searching “CPA for e-commerce 

thank you all!!!!!

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I hope H&R Block has got better since I used them.

The first full year of online selling, I decided to go through them and they had no idea about online sales.

I've always done my own taxes and thought it would be easier to have someone else do it, boy was I wrong.

Had to pay them a little over $300 and pretty much had to explain to them how to do it.

This was either in 98 or 99.

[mr_lincoln]

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@mam98031 wrote:

@mr_lincoln 

That method can actually serve us well in all kinds of things.  Being consistent can help you find problems with they arise and all kinds of different things in our lives.  Its also good for our sanity to set up procedures for ourselves to follow.  It just makes all kinds of things in life easier IMHO.

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@mam98031 

Very true, reminds me of times when I was a Service Engineer out on a customer's production line troubleshooting a machine in order to fix it to get the production line running again.  That of course followed half to a full day of travel to the site, (flying, renting a car, driving to the plant, etc) ...

And of course doing the troubleshooting while the Maintenance Manager, Production Manager and all Line Workers "patiently" waited LOL! 

[powell-memorabilia]

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@luckythewinner wrote:

---

@mr_lincoln wrote:

-You will need a beginning and ending value of your inventory 

OMG don't fall into the trap of accrual accounting or accounting for your inventory unless you have to.

If your business does less that $27 million a year, you can use cash basis accounting and treats inventory as non-incidental material or supplies.

See IRS publication 334 for an explanation of treating inventory as non-incidental material or supplies, if you can do this it will save you a lot of grief.

"If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid or incurred to acquire or produce the inventoriable items treated as non-incidental materials and supplies in the year in which they are first used or consumed in your operations. Inventory treated as non-incidental materials and supplies is used or consumed in your business in the year you provide the inventory to your customers".

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💯 

cash basis is so much easier - AND allows for earlier expense recognition, lowering your tax bill today.  Not sure why anyone would want to recognize a real expense years from when it was incurred.

[mam98031]

@looksgoodfromhere 

See if these help.

https://community.ebay.com/t5/Announcements/eBay-and-TaxAct-partner-to-help-you-navigate-new-Form-10...

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

https://www.irs.gov/businesses/gig-economy-tax-center

https://pages.ebay.com/seller-center/service-and-payments/2022-changes-to-ebay-and-your-1099-k.html

https://www.irs.gov/pub/taxpros/fs-2022-41.pdf

[mam98031]

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@mr_lincoln wrote:

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@mam98031 wrote:

@mr_lincoln 

That method can actually serve us well in all kinds of things.  Being consistent can help you find problems with they arise and all kinds of different things in our lives.  Its also good for our sanity to set up procedures for ourselves to follow.  It just makes all kinds of things in life easier IMHO.

---

@mam98031 

Very true, reminds me of times when I was a Service Engineer out on a customer's production line troubleshooting a machine in order to fix it to get the production line running again.  That of course followed half to a full day of travel to the site, (flying, renting a car, driving to the plant, etc) ...

And of course doing the troubleshooting while the Maintenance Manager, Production Manager and all Line Workers "patiently" waited LOL! 

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OK here I go dating myself.  I was a bookkeeper long before books were kept on a computer.  Being consistent is what kept my sanity.  Because when that big ledger book ended up being out of balance I had to work until I found the issue.  So being consistently right or consistently wrong, being consistent really help to find and fix things much easier.

Back in those days I really would have gone nuts if I did things one way one day and another way the next.

[mam98031]

I agree.  I've done my books on the cash method since I started selling on the internet some 25 years ago.