Starting with Tax Year 2011, there are some big tax law changes coming for online sellers. All payment processors (think PayPal) will be required to send 1099k forms to online sellers who make more than $20,000 in sales AND sell more than 200 items. The forms will arrive in sellers’ mailboxes in mid-January 2012.
So, what does this mean in plain English?
The IRS will now have an accurate record of your sales income. The IRS will know what you sold, but they have no way of knowing what it cost you to make or buy your products. As the seller, you need to keep proper records of your expenses, so that you can maximize deductions and pay taxes only on the profit that you’ve made.
Hopefully, you’ve been tracking your expenses all year and this is easy! But, if not, you should start now – as something is better than nothing. One way to go is to use a free online tool, like Outright, that does it for you by downloading your transactions into one place (disclosure: I work for Outright.com). Alternatively, you can start tracking your expenses in excel, so that you have the appropriate records. Either way, the better your tracking, the better your taxes will be at the end of the year!
About the Author:
Laura Messerschmitt is the Vice President of Marketing at Outright, a free online accounting software for small businesses. She loves helping the self-employed and small businesses to be more successful and grow their businesses.
(Now visit the Outright blog to read my guest blog that will help you understand what cost of goods sold is and why you should care about cost of goods sold. http://outright.com/blog/why-should-you-care-about-cost-of-goods-sold/ )
