Wifasso.com
Henry’s Random Thoughts
There
are two major types of taxes, income taxes and sales taxes. If you plan on
turning ebay into a business, even a part-time one, you will have to worry
about both kinds.
You
owe income taxes when you turn a profit on what you sell, after all fees and
lawful deductions. Therefore, the hypothetical person cleaning out the junk in
his house will usually not owe income tax, since the prices realized will be
less than he paid for them. The casual seller will not have to worry much about
income taxes, even if one or two items sells for more than what was paid. No
one is going to chase you down for twenty bucks of profit. However, if you sell
a lot and make a regular income stream, you should declare. You are leaving a paper trail of payments, and there’s
no way of knowing what records an agency is looking at. The fact is, hundreds
of thousands of people are making a steady profit on ebay. The IRS is not
ignoring it. Another thing to remember is that if you keep good records, the
lawful deductions can add up and reduce your tax bill.
Sales
taxes are actually paid by the buyer, but the seller is responsible for
collecting them. The tax is a percentage of the sale price of goods that are
not specifically exempt. As a general rule, a seller is only responsible for
collecting sales tax in a state where he has a physical presence. Therefore,
unless you sell an item that appeals mainly to your home state, you will not
collect it often. Again, the casual seller can probably get by without worrying
about it. After all, if he sells 50 items a year, only one would be a taxable
sale, on average. It is unlikely someone would come after you for that.
If
you plan on making a steady business out of it, get a vendor’s license from
your home state and fill in the ebay section that collects sales tax. You will
probably need to file a simple return and send whatever sales tax you collect to
the state every six months or so. At some point, the states will probably pull
something off where sellers will have to collect for states where they don’t
have a location. You should just keep selling and hope that day is a long way
off. Charging sales tax takes away money bidders are willing to spend on your
auctions. Don’t do it except when you are legally required.
Unfortunately,
when you go online these days, a lot of crooks will see you as a target. This
is especially true of ebay sellers, who have to conduct business with strangers
to succeed. And if you start selling high-value items, the bad guys will start
coming out of the woodwork. While the list of scams below is by no means
complete, it shows some of the more common rackets.
Phishing-These
are emails that look like they come from ebay or Paypal, but they are in fact
from criminals who use the messages to gather passwords to hijack your accounts
and steal from you. To weed out many of these, turn on spam filters. Be wary of
emails that don’t contain your name, but instead use generic terms like “ebay
user.” The problem emails try to get you to panic by stating that your account
is about to be closed if you don’t reply. Never click on a link in an email. It
won’t necessarily send you where it tells you it will send you. The way to
avoid phishing scams completely is to use ebay and Paypal’s homepages. Log into
your account. If there is a problem that might close your account, there will
be an alert when you log in.
Offers
involving cashier’s checks-Typically, someone will send you a message offering
to buy your item. They will tell you that they are going to send you a
cashier’s check with an amount for shipping, and they request that if they
overpay, you should refund them via wire transfer. The trick is that the check
is counterfeit. Your bank will take it, but they will debit your account a few
days later when the check fails to clear. Since a wire is instant, the shipping
“refund” you sent will be long gone, usually to some other country where the
scammers operate. Think about it: Who in their right mind would grossly overpay
for shipping and trust you to refund it. You should smell a rat here. There are
two important lessons here. First of all, while a real cashier’s check will
never bounce, there is nothing stopping someone from faking one. For large
dollar amounts, wait for them to clear. Secondly, wire services like Western
Union are meant for people to send money to parties that they know. NEVER use
them in conjunction with ebay or any other online commerce.
Bad
checks/Insufficient funds-A problem as old as checking itself. You can defend
yourself by depositing checks quickly and waiting a several days for them to
clear before shipping. Personally, I ship low-value items right when I get the
check, since I figure that no one would bounce a check for $20. But if you want
to be sure, wait for them to clear.
Chargebacks
and other false claims-Most Paypal payments are funded with a credit card.
Although Paypal doesn’t like to discuss it, this gives the customer the right
to ask the card issuer to do a “chargeback,” a forced refund on the card that
Paypal charges your account for. Some people will use this to settle what they
feel are legitimate beefs. You can minimize these by being honest in your
listings and practicing good customer service. But there are some outright
criminals out there who will just lie about whether or not they got the goods
or the condition they arrived in. To protect yourself, use signature confirmations
on expensive items, and familiarize yourself with Paypal’s seller protection
policies, which might help you recover if all your ducks are in a row. For very
expensive items, you might want to refuse credit card payments if you feel like
you can’t afford a chargeback. The problem with this approach is that it stops
people from bidding on things they can’t really afford with borrowed money. In
a country like ours, that will eliminate a lot of potential buyers! My
experience is that it isn’t a major problem for items under $100, and if you
get one every once in a while, you should have enough profit built into your
sales to absorb it if the seller protection thing fails. Even for cheaper
items, I use delivery confirms (non-signature), which costs only 18 cents if
done with electronic labels. This keeps honest people honest, since it makes
stories of the item that never came less credible. If something is only worth a
few bucks, I don’t bother with anything besides postage, because the risk of
loss is miniscule.
The
feedback system doesn’t always work quite as it is supposed to, but it can
still provide some useful information. For the uninitiated, the feedback system
allows you to rate each trading partner and leave a comment about the deal. My
major complaint about the system is that people live in mortal fear of getting
a negative. They thus will not give a negative due to the fact they fear
getting a retaliatory one. Everyone is forced to play the game, since people
are compared to each other. You end up seeing guys with 5,000 ratings and no
negatives. There is no way a business can operate with such a level of
satisfaction. Someone is dissatisfied out there. Also, each person can only
leave one feedback per trading partner that counts towards the score, so repeat
business does not show up.
Still,
you want to maintain a good score. Don’t leave feedback for bidders until they
have left it for you. Don’t make a federal case out of a few negatives out of
hundreds.
You
can use feedback to judge buyers, in case they ask to use a different payment
method or for some other favor. A bidder with a good reputation deserves more
flexibility, in my opinion. Pay more attention to the total points and years of
membership rather than the percentage.
Some
sellers won’t sell to bidders with low feedback. I disagree with this policy,
because first of all, people have to start somewhere, and secondly, refusing
bidders is bound to lower your selling price. Just be sure not to let low
feedback bidder yank your chain too much. Be especially cautious when dealing
with bidders who have a zero rating (aka “trolls”).
Written
by Henry Grimmelsman starting in 2007. Please do not use without citation and
linking to my website.