Keeping eBay Business Records for Uncle Sam

One of the reasons we have such a great business environment in the United States is because everyone has a partner, Uncle Sam. The government regulates business and sets the rules for businesses to transact their operations. You need to know what information to keep and for how long you should keep it (just in case you're chosen for an audit).

To help you out with your business, the IRS maintains a Small Business/Self-Employed section on their Web site.

Supporting information

Aside from needing to know how your business is going (which is really important), the main reason to keep clear and concise records is for the anticipation that Uncle Sam may one day come knocking. To stay on the good side of Uncle Sam, you must keep records. (You really never know when the IRS will pick your number and want to examine your records.) In the following list, take note of the important pieces of supporting information (things that support your expenses on your end-of-year tax return) that you should diligently keep track of:

• Receipts: Dear reader, read carefully and heed this advice: Save every receipt that you get. If you're out of town on a buying trip and have coffee at the airport, save that receipt — it's a deduction from your profits. Everything related to your business may be deductible, so you must save airport parking receipts, taxi receipts, receipts for a pen that you picked up on your way to a meeting, everything — if you don't have a receipt, you can't prove the write-off.

• Merchandise invoices: Saving all merchandise invoices is as important as — if not more than — saving all your receipts. If you want to prove that you actually paid $400 apiece for those PlayStation 2's that you sold at eBay for $500 apiece and not the $299 retail price, you'd better have an invoice of some kind. The same idea applies to most collectibles, in which case a retail price can't be fixed. Save all invoices!

• Outside contractor invoices: If you use outside contractors — even if you pay the college kid next door to go to the post office and bank for you — you should also get an invoice from them to document exactly what service you paid for and how much. This is supporting information that will save your bacon, should it ever need saving.

• Business cards: This one may sound like a stretch, but if you use your car to look at some merchandise, pick up a business card from the vendor. If you're out of town and have a meeting with someone, take a card. Having these business cards can help substantiate your deductible comings and goings.

• A daily calendar: This is where your Palm Handheld comes in (if you use it for business, it's an expense). Every time you leave your house/office on a business-related task, make note of it in your Palm. Keep as much minutia as you can stand. Your Palm Desktop can print out a monthly calendar. At the end of the year, staple the pages together and include them in your files with your substantiating information.

• Credit card statements: You're already collecting the credit card receipts. If you have your statements, you have monthly proof of expenses. When you get your statement each month, post it into your bookkeeping program and itemize each and every charge, detailing where you spent the money and what for. (QuickBooks has a split feature that accommodates all your categories.) File these statements with your tax return at the end of the year in your year-end envelope (shoe box?).

This stuff will pile up, but that's when you go to the store and buy some plastic file storage containers to organize it all. To check for new information and the lowdown on what you can and can't do, ask an accountant or a CPA. On your own, visit the IRS Tax Info for Business site.

How long should you keep your records?

How long do you have to keep all this supporting information? Generally speaking, you should probably save it all. Before you know it, you'll have ten years of paperwork in big plastic boxes and old scary files in the garage. But you know, that's not as extreme as it may sound; the time period in which you can amend a return or in which the IRS can assess more tax is never less than three years from the date of filing — and can even be longer. For example, the IRS Web site contains guidelines such as the information in Table 1.

Table 1: How Long to Keep Your Records

Even though this information comes directly from the IRS Web site and literature (Publication 583 "Starting a Business and Keeping Records"), it may change in the future. It doesn't hurt to store your information for as long as you can stand it and stay on top of any changes the IRS may implement.