New Online Seller Tax Issues


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New Online seller Tax

It’s been years since I wrote a book entitled “Tax Loopholes for eBay Sellers.” eBay isn’t quite as hot as it used to be. Now the big thing is FBA (fulfilled by Amazon). The main tax questions are still the same, though. I recently received this question at USTaxAid.

Q: I purchased Diane’s book Tax Loopholes for eBay Sellers with the intent to sell all the items in my storage units from my four bedroom home after moving. I set up a C corporation through the State of California and upon requesting a Federal Tax ID number, I might have made a mistake in selecting a “Wholesale” business instead of “Retail” business. With the funds from the sale of all storage units, I would like to expand into other streams of income by purchasing real estate, funding a Solo Roth 401k, investing in a small franchise, and or, purchasing tax liens in the future, anyway.

Did the selection of “Wholesale” going to cause me recurring problems every tax season?

Should I start trying to wholesale through my eBay C corporation as soon as possible?”

A: Does it matter that the community member selected that he wanted to be a wholesaler when he received his EIN?

No. He will select a business code when he files his first return and that is more important. At that time, he should select that he is a retailer, if that’s what he is.

A: Should he start his business as soon as possible. ABSOLUTELY! Start your business as soon as possible.

There is another item that wasn’t asked and that should probably be discussed. It is almost never a good idea to start with a C Corporation. That’s because most business owners have a loss in the beginning. An S Corporation will allow you to take that loss against your current income. Later, when you are making net profit, you can easily switch your S Corp to a C Corp.

The exception is if you’re not eligible to be an S Corp or if you plan to go public.


3 Comments

  1. Mo says:

    Thank you so much, Diane, for your advice about this.

  2. Mo Quasem says:

    Hi, Diane. I am an American currently living overseas and won’t be back in the US for a year. I would like to set up an online store and operate it as a virtual US business. Could establishing a virtual Nevada LLC be a suitable way of doing this in your opinion? I’ve read that a Nevada LLC might not always be desirable for Americans living in other US states. Thank you.

    • Diane Kennedy says:

      A NV LLC doesn’t give you any tax advantages over an LLC in your own home state. That’s because the LLC is generally a flow-through entity and so the income will flow through to your personal return anyway.

      However, you’re living (and presumably working) outside the country. You may be taking advantage of the FEIE (foreign earned income exclusion) and not paying state income tax either. If that’s the case, it doesn’t matter, at least for the next year.

      After that, you may need to change the LLC to your home state.

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