Henryís 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 thereís 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 vendorís 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 donít 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. Donít 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 donít contain your name, but instead use generic terms like ďebay user.Ē The problem emails try to get you to panic by stating that your account is about to be closed if you donít reply. Never click on a link in an email. It wonít necessarily send you where it tells you it will send you. The way to avoid phishing scams completely is to use ebay and Paypalís 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 cashierís 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 cashierís 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 ďrefundĒ 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 cashierís 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 doesnít like to discuss it, this gives the customer the right to ask the card issuer to do a ďchargeback,Ē 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 Paypalís 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 canít afford a chargeback. The problem with this approach is that it stops people from bidding on things they canít really afford with borrowed money. In a country like ours, that will eliminate a lot of potential buyers! My experience is that it isnít 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 donít bother with anything besides postage, because the risk of loss is miniscule.
The feedback system doesnít 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. Donít leave feedback for bidders until they have left it for you. Donít 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 wonít 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 ďtrollsĒ).
Written by Henry Grimmelsman starting in 2007. Please do not use without citation and linking to my website.