By Cliff Ennico
I was privileged to co-host two recent webinars for online sellers sponsored by Outright.com, a leading accounting and financial management software tool for people who sell on eBay, Amazon, Etsy and other web retail venues.
The webinars, with a combined attendance of over 1,000 people, generated tons of tough questions on sales tax nexus, the home office deduction, and other "cutting edge" tax issues. Here are some of them:
Q: I rent an office/warehouse space and thus do not take a home office deduction. I report business income on a Schedule C. My husband works from home for the convenience of his employer and would otherwise meet the IRS home office test. I've been told that we cannot use the deduction for his home office because of my rented space, is that correct?
A: Correct, but not because of your rented space. That home office is your husband's, but he doesn't have a business. Any home office maintained for the convenience of an employer does not qualify for the home office deduction.
Q: If I did not track my mileage last year, is there still a way I can claim my mileage?
A: Only if you can find a way to get good records of it. For example, if you have a receipt from a post office for a specific day, you might be able to say that you had mileage to and from the post office on that day.
Q: If I have nexus in another state for sales taxes, does that mean I'm now liable for income tax reporting in that state too?
A: Not necessarily. Talk to your accountant and ask him or her to look up the income tax "nexus" rules in the other state, which often require a greater physical presence than "nexus" for sales taxes.
Q: Do the "nexus" rules for sales tax apply when selling to a foreign country?
A: No, at least for U.S. taxes. If you have a physical presence in a foreign country, your business probably will be subject to that country's tax laws and social welfare legislation. Also, your buyers may have to pay value added tax (VAT) on their online purchases.
Q: I built an outbuilding on my property which I use for my home office and for storing eBay inventory. Can I deduct any portion of the construction expenses as part of the home office?
A: Probably not, but you might be able to include construction costs as part of the "basis" of your home office should you decide to depreciate your home. Talk to your accountant about that.
Q: If you quit storing items in another state, does nexus disappear?
A: Yes, as long as you don't have another kind of physical presence there; however, if you have been paying taxes in that state, you may have to file a "final" sales tax return to let the state know you have withdrawn your activities there. Be careful here, as a number of states have recently passed laws imposing "nexus" without a physical presence as long as (1) you sell more than $X worth of goods (usually between $10,000 and $20,000) to residents of that state each year AND (2) you direct your marketing and advertising activities to residents of that state. You need an accountant to tell you exactly what laws apply whenever you are in another state.
Q: If you have offices in two states, can you use the office deduction for each? These are dedicated offices.
A: Not at the same time; generally you are considered to have only one "home," usually the place where you are domiciled for tax purposes. However, if you use the two offices at different times (i.e. you spend the winter months in Florida and the summer months in the northeastern United States, as many people do), you may be able to claim the home office deduction for each office for that portion of the year where you are physically there. Just don't overlap. Also, keep in mind that if you do this, you will have "nexus" for sales tax (and possibly also income tax) in both states.
Q: Is there free tax help for businesses?
A: There are lots of online resources and information, but we are not aware of free tax help that's specific to an individual business. Your local SCORE chapter may be able to help you - some of their members are retired accountants who may be able to help you for free or for a very small charge. To find the SCORE chapter nearest you, click here. Also, check out the IRS's Volunteer Income Tax Assistance (VITA) program. Just remember, though, that "you get what you pay for."
Laura Messerschmitt, Outright's VP of Marketing, and I will be reprising our webinars "live" at this year's Seller's Conference for Online Entrepreneurs (SCOE) May 30 to June 1, 2013 in Seattle, Washington. For details, go to www.scoe.biz.
), a leading expert on small business law and taxes, is the author of Small Business Survival Guide
, The eBay Seller's Tax and Legal Answer Book
, and 15 other books. COPYRIGHT 2013 CLIFFORD R. ENNICO. Permission granted for use on DrLaura.com.