Selling products on the Internet can be a good way to bring in some extra cash, but it is important to factor taxes into the equation. To the Internal Revenue Service, the money you make on Amazon and other websites is income, and you must report that income or face additional interest and penalties when the IRS finds out about it.
The IRS considers the money you make on Amazon to be business income, and you must report any income you derive from the site. If you fail to report all of the income you make on Amazon, you could be subject to back taxes, as well as additional interest and penalties. If you sell any products on Amazon, you need to track the proceeds of each sale carefully so you can report all of your income accurately.
When you file your taxes, you must report any income you derive from self-employment or a business you own on Schedule C. This schedule allows you to list all sources of self-employment and business income, as well as any allowable deductions and expenses. It is important to keep track of all your sales, as well as any expenses you incurred in making those sales. Tracking your expenses carefully is the best way to get credit for all your deductions and expenses.
When you are self-employed, the IRS considers you both the employer and the employee. That means that you are responsible for paying both the employee and the employer side of Social Security and Medicare taxes. This combined tax is the self-employment tax. You are responsible for paying that tax on any money you make at Amazon or anywhere else you sell products and services.
You can lower your tax burden by claiming the tax deductions to which you are entitled. You can, for instance, deduct the amount you paid for any of the products you sold on Amazon, as well as the costs associated with producing intellectual property products, such as books and e-books. Depending on your business model and circumstances, you might also be able to write off expenses associated with keeping a home office, fuel expenses if you use your personal vehicle for business purposes and the cost of office supplies.
- A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com