What Kind of Records Should You Keep for Your eBay Business?
One of the reasons there is a great business environment in the United States and you can have your own eBay business is because business owners all have a partner, Uncle Sam. Our government regulates business and sets the rules for you to transact our operations. To help you get started with your business, the IRS maintains a small-business website.
Aside from needing to know how your business is going (which is really important), the main reason to keep clear and concise records is because Uncle Sam may come knocking one day. You never know when the IRS will choose your number and want to examine your records. Here are some of the important pieces of supporting information (things that support your expenses on your end-of-year tax return):
Receipts: Please heed this advice: Save every receipt 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.
Merchandise invoices: Saving all merchandise invoices is as important as saving all your receipts. If you want to prove that you paid $400 and not the $299 retail price for that PlayStation 2 that you sold online for $500, 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 the bank for you — you should get an invoice from them to document exactly what service you paid for and how much you paid. This is supporting information that will save your bacon, should it ever need saving.
Business cards: 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 smartphone or tablet comes in. Every time you leave your house or office on a business-related task, make note of it either on the website that hosts your calendar (Google Calendar syncs easily) or on your mobile devices. Keep as detailed a hoard of minutiae as you can stand.
At the end of the year, you can print your Google calendar by month for tax backup. Staple the pages together and include the hard copies in your files with your substantiating information.
Credit card statements: You’re already collecting credit card receipts, right? It’s not a bad idea to scan these before they fade or get lost — but it isn’t crucial if time is an issue. If you have your statements, you have a 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. File these statements with your tax return at the end of the year in your year-end envelope.
All 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. Also visit the IRS Tax Information for Businesses site (they even have videos).
How long should you keep your records?
How long do you have to keep all this supporting information? The 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 be even longer.
The IRS wants you to save anything related to your tax return for three years. But, the IRS may want backup documentation for up to six years. So for safety’s sake, keep things for six years, if only to prove you’re innocent.
|Circumstance||Keep Records This Long|
|You owe additional tax (if the following three points don’t apply)||3 years|
|You don’t report all your income and what you don’t report is more than 25% of the gross income shown on your return||6 years|
|You file a fraudulent tax return||Forever|
|You don’t bother to file a return||Forever|
|You file a claim of refund or credit after you’ve filed||3 years or 2 years after the tax was paid (whichever is longer)|
|Your claim is due to a bad debt deduction or worthless securities||7years|
|Employment Tax records||At least 4 years after the date that the tax becomes due or is paid, whichever is later|
|You have information on assets||Life of the asset|
This information may change in the future. You can download a PDF copy of the booklet for your own reference.
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.