Best filing method for online sales

[Geograffix_420]

Hello, I was wondering in NC which would be the best way to keep the taxes as low as possible on online sales. I’d rather not open a business but I also don’t want to donate the majority of my money to the IRS. So I’m assuming the options are self-employment, Sole Proprietorship, and LLC. Any help or advice is greatly appreciated!

[JBedford]

Hi, @Geograffix_420 , thanks for the question! To answer, the three options you mentioned mean the same thing from a tax perspective. My best advice to keep your taxes as low as possible is to claim every possible business expense that you are entitled to (but no more!) This TurboTax article is full of more great information on this topic. 

Hope this helps, please let me know if this raises additional questions! 

[Denisev1220]

Sole proprietorship and LLCs are both considered self-employment. You will report the income and then deduct expenses. The result is what you pay taxes on. You will owe the reular income tax, plus self-employment tax consisting of social security and medicare taxes. When you work for wages, you see SS and Medicare deducted on each check. Your employes has to match that amount out of his pocket. Since you have no employer, you are responsible for paying both halves. This equates to 15.3% on 92% of you profit.

[Opus 17]

The way to pay the least tax is to keep accurate and meticulous records.  

In general, you have taxable income if you sell an item for more than your cost basis.  You can deduct ordinary and necessary expenses, like listing fees, commissions, shipping, advertising, and so on.

If you are engaged in a regular and ongoing activity for the purpose of making income, that's a business. A sole proprietorship or single member LLC are reported exactly the same on your tax return.  Both are forms of "self-employment."  

If the activity is sporadic or occasional, you could attempt to treat it as a hobby.  With a hobby, you don't pay self-employment taxes, but you can't deduct your expenses other than the cost of the item. (No deductions for advertising, shipping, credit card fees etc.). However, if the money is substantial, expect the IRS to push back on the hobby claim. 

On the other hand, if you are only selling your own used items for less than you paid, that would be treated as a hobby (because it is not for profit).  You can't deduct a tax loss and you can't deduct expenses like shipping and listing fees.  But you need to have records to show the IRS that you did in fact only sell items for less than you paid.  If you sold some items for less and some items for more, you owe tax on the items where you made a profit, but you can't use the items sold at a loss to offset the profits. 

[VolvoGirl]

First of all self-employment, Sole Proprietorship, and a Single Member LLC are all the same.  Unless the LLC is a Single Member LLC elected to be a S corp.  then you file a separate 1120 S business tax return.   My reply on your other post should explain it and has links to IRS publications like business expenses.  

You may need to pay quarterly estimated taxes to cover the self employment tax on your income.  Turbo Tax will calculate the 1040ES estimated payments

https://ttlc.intuit.com/community/tax-payments/help/can-turbotax-calculate-next-year-s-federal-estim...

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).

To prepare estimates for next year you start with your current return, but be careful not to change anything.  For Online returns, if you can't get back into your return, Click on Add a State to let you back into your retun.

You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

Or Go to….

Federal Taxes or Personal (Desktop H&B)

Other Tax Situations

Other Tax Forms

Form W-4 and Estimated Taxes - Click the Start or Update button

How to make the Estimated payments

https://ttlc.intuit.com/community/tax-payments/help/how-do-i-make-estimated-tax-payments/00/25875