How do I report the income I make from selling items online?

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Question:

How do I report the income I make from selling items online?

Answer:

When you operate an online business or have a brick-and-mortar store that also has an internet presence, the business income earned is reported like any other sales revenue.  In addition, there are rules concerning the collection and reporting of online sales tax. Each state makes it own rules for online sales taxes, so the location of the business has an impact on reporting requirements.

Business or Individual Income

Though it is clear a business must report income from sales originating from any source, it is not always clear when a private individual selling items online must report revenue to the Internal Revenue Service. The rule of thumb is that people periodically selling personal belongings similar to items that would be sold in garage sales do not have to report the income to the IRS.

The online sales tax rules are more complicated.  In general, a business selling to people located in the same state as the business must collect online sales tax.  There are exceptions though because some states like New York, Kansas, North Dakota, Washington and Kentucky currently require that online sales taxes be paid on Amazon orders no matter where the customer lives.

Technically, an individual that does not pay the online sales tax to the vendor is supposed to report the amount as use tax on the state income tax form.

Consult an Attorney

An online seller should always consult with a tax attorney to determine income and sales tax reporting responsibilities. The laws are constantly changing making it difficult for individuals and businesses to know when they need to report income or pay sales tax for online sales.  

References:

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