<< General Disclaimer: > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << It cannot be used by any taxpayer for the purpose of > << avoiding penalties that may be imposed on the taxpayer. > << ================================================== ===== >
Kathrin" <markatker[at]hotmail.com> wrote:

- quote -

Roughly, after expenses, you should set aside at least 25%
of net profits from you side business. I say "at least"
because on your self employed income, you'll pay SS & Medi
tax (around 15%). In addition to that, you'll pay income
tax. The income tax on your side business profits will
depend on what tax bracket your regular job puts you in.
You'll be taxed at your highest marginal rate. So if you're
in the 10% income tax bracket, then 25% will cover you.
(You'll be given a credit for your self employment tax, but
that won't offset your income tax dollar for dollar, so it's
best (read easier) not to try to calculate the effect of
that credit.)

- quote -

On a Schedule C, Part II, your year-end inventory will be
used to calculate your Cost Of Goods Sold (COGS). Reducing
your inventory will increase your COGS, thus lowering your
taxable income. But... tax considerations should be just
that, a consideration. It shouldn't be the sole driver of
your business decisions. Don't have a "fire sale" just to
eliminate your inventory.

Depending on what state your in, you may have to pay a state
tax on your year-end inventory. Check with a local
professional.

- quote -

You may be better off having a professional do your return
for the first year or two. If you don't have much change
(in business volume or business model) and you feel
comfortable with your return, you may want to take the
return on yourself. But you will be better served by
initially getting professional advice and tax planning.

Hope this helps,
Russell Tuncap, CMA, CPA
www.tuncap.com


<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << Copyright (2005) - All rights reserved > << ------------------------------------------------->

<< General Disclaimer: > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << It cannot be used by any taxpayer for the purpose of > << avoiding penalties that may be imposed on the taxpayer. > << ================================================== ===== >
Kathrin wrote:

- quote -

You are probably a sole proprietor (self-employed) and will
be filing Schedule C and SE (for the employment taxes) to
determine your taxable income. Assuming you are currently in
the federal 25% bracket, you should probably figure on
setting aside 40% of net income (25% income tax + 15% SE
taxes). Add additional for state taxes. The inventory issue
can be handled on the Schedule C and by any basic accounting
program.

Get, and read, IRS Pub 334.

For the first year, you might consider having your return
done by a professional tax preparer or enrolled agent (EA).
That will make sure that you are firmly on the right path.

Good luck in your new business!

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << Copyright (2005) - All rights reserved > << ------------------------------------------------->

Hi everybody!

Thanks so much for taking the time to read and answer the
questions of a person with a totally empty brain when it
comes to taxes :-)

I am working a regular job and sell some stuff on ebay
'officially', meaning I got a Sales Tax ID and business
license etc. I was wondering how much I should set aside as
a rule of thumb for the additional income I have. We are
talking about 5K/year after all expenses. Somebody said the
IRS will take about a third of it. Does that sound right?

Second question: This is the first year I am selling on
Ebay. I might end up with inventory at the end of the year.
I would like to keep everything IRS simple, so should I see
if I can sell everything that is in inventory by the the end
of the year and start new every year? How is inventory
treated in my tax return? Is it a good thing or not? Of
course I want to pay as less taxes as possible.

I am using tax act for the past years and it is very easy
for me. Can I keep it that uncomplicated and inexpensive
with a second income like that or should I have my return
professionelly done?

Thank you so much.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << Copyright (2005) - All rights reserved > << ------------------------------------------------->