Hello everyone and thanks for joining us today. My name is Phyllis Wischer. I am an eBay Education Specialist and co-founder and Business Success Coach for Certified Solution Provider SageFire, Inc. - creators of KeepMore.net. I am also a Public Accountant with over 20 years experience in helping thousands of small business owners with their bookkeeping, accounting, payroll and tax needs.

As a Certified Solution Provider, SageFire specializes in helping small business owners' track their business financial activity using its online accounting, contact management and document storage solution. Our solution, KeepMore.net makes it simple for you track your business while maximizing your tax benefits.

The basis for a good solid business foundation is just like the foundation for constructing a building; the stronger the foundation the better. Up until a few years ago, people would open an eBay account, start selling used items from their home and get excited as they saw discretionary funds building in their bank account. Next thing, they were offering to sell items for their family, friends and neighbors for a small fee. Never once did most of them consider this a business. However, times have changed and so must most eBay sellers.

The term 'Tax Gap' is heard quite often these days and relates to the IRS and small businesses of every type. But online auction businesses seem to be getting more than their fair share of attention. That is why eBay sellers must have a better understanding the term eBay business and what it takes to build a solid foundation for that business.

During today's session we are going to discuss:

• The Tax Gap, the IRS and you!


• Do you have an eBay hobby or do you have an eBay business?


• Building a good foundation - a checklist for starting a new business or checking the foundation of your eBay business today


• Other things to consider for your eBay business

Before we go any further, I want to remind you that I am not here to provide tax advice, just some basic information about building a solid foundation for your business. For your specific tax situation, I recommend you consult with your tax advisor.

The term Tax Gap is used to explain the difference between what a taxpayer owes and the amount of tax the taxpayer actually pays. In June 2006, the IRS announced it completed a National Research Program, a study to measure reporting compliance and determining the tax gap. In their study of individual tax returns for the year 2001, they determined that the largest component of the tax gap comes from unreported and underreported income. Non-filing and underpayment of tax comprise the remainder of the tax gap. The data suggested that well over half ($109 billion) of the underreporting gap came from understated net business income - underreported receipts and overstated expenses.

According to eBay, in Q1-08, gross merchandise volume (GMV), the total value of all successfully closed items on eBay Inc.'s trading platforms, was $16.0 billion. Total GMV for the full year 2007 was more than $59 billion. eBay Marketplaces has approximately 83.9 million active users worldwide. http://news.ebay.com/fastfacts_ebay_marketplace.cfm

Can you imagine the billions of dollars of unreported and underreported income if their study researched 2006 or 2007 individual tax returns?

It is understandable, from the information above, that the IRS is taking an aggressive stand on unreported and underreported income. They have even hired and trained more revenue agents. This aggressive stand could include an audit of your eBay activity - an audit of the items you sell on eBay.

Don't wait for an audit. According to Cliff Ennico, a lawyer specializing in legal and tax issues for small businesses, a popular instructor at eBay University and eBay Live in his most recent book The eBay Seller's Tax and Legal Answer Book, "You have to pay income tax on every penny of profit you make on eBay - even if you make just one dollar, and even if you think of your eBay selling as a hobby rather than a business." Now it's up to you, with the help of your tax advisor, to determine if you have an eBay hobby or an eBay business. Here are some interesting facts about hobby vs. business.

Is it time you looked at your eBay activity as a business?

The first thing to think about is how the IRS would classify your eBay activity during an audit.

Some of the things the IRS consider:

• How much time and effort you devote to the enterprise


• Whether the activity makes a profit in some years and, if so, how much and how often


• Whether you depend on income from the activity for your livelihood


• Here is a link to the IRS web site for online auction sellers - this could help you determine if you have an eBay business.

The next thing to consider is the tax consequences of hobby versus business.

Tax consequences to consider:

Hobby

• Hobby income is reported 100% as income


• Hobby expenses are reported on your Schedule A and limited to 2% of adjusted gross income and Standard Deduction limitations (but first you must qualify to itemize)


• Deduction of Home Office and inventory storage at your home is not allowed when you classify your eBay activity as a hobby

Business

• Business income is reported on your business tax form


• Business expenses are reported on the same tax form with no 2% or Standard Deduction limitations


• Deduction of Home Office and inventory storage at your home is allowed. Normally this deduction alone gives a great deal of value when considering treating your hobby as a business

Because everyone's tax situation is different, I highly recommend that you visit with your tax advisor to get a better understanding of how the IRS would classify your eBay activity and the tax consequences for you of a business versus hobby ruling.

We have provided you with a lot of information. It's time to think about building that solid foundation if you are doing eBay as a business. Use the checklist below to help you during the process of creating an eBay business; or, if you have already started your business, use it as a checklist to be sure you have built your business on a solid foundation.

• Hire an accountant or tax advisor. If you need help, go to your favorite search engine and type in 'questions to ask an accountant'. Then do an interview process with 3-5 professionals until you find the one that you will be comfortable working with. Remember, you should be able to discuss your business, tax and financials matters with them easily and not be intimidated by them.


• Discuss the different business entity choices with your new advisor and choose an entity that fits your business needs. You have several options including incorporation, limited liability company (LLC), partnership or sole proprietor. Discuss the option of selecting Subchapter S status (S-Corporation) for your business.


• Consult with an attorney regarding the federal and state laws governing the creation, ownership and operation of the business entity you have selected. It is an absolute waste of money to set up a business entity with any kind of liability protection if you have not used an attorney to do so. Who would know the legal structure you require for liability protection better than an attorney. Again, you should use an attorney that you feel you can discuss your business, tax and financials matters with easily and not be intimidated by them.


• You will need to file all the required paper work with the IRS, state and local authorities. You need to determine who will be responsible for filing these documents and then follow up to be sure the documents have been filed.




• File with your state for trade name, certificate of assumed name or DBA. Click link below to get more information about doing business in your state.
  http://www.taxadmin.org/fta/link/forms.html


• Obtain a federal employer identification number (EIN) - required for corporations, partnerships, LLC's, and any business entity that will have payroll and payroll tax liabilities - click link below more information.
  http://www.irs.gov/pub/irs-pdf/fss4.pdf?portlet=3
  
• File incorporation, limited liability company (LLC) or partnership documents with your state.


• Obtain state tax identification numbers.


• File required documents with state unemployment and sales tax authorities


• Obtain required city/county/local business licenses and permits.




• If you have not already done so, open an eBay and PayPal account. It's simple and easy to do; and, it's free. Click on the link below to start this process.
  https://scgi.ebay.com/ws/eBayISAPI.dll?RegisterEnterInfo
  
• Establish a business checking account. I cannot stress enough the importance of separating your business banking transactions from your personal banking transactions. This is probably one of the first things the IRS will ask you during an audit. Again, you have wasted a lot of time and money setting up your business if you do not keep separate banking and credit card accounts.


• Conduct the necessary corporate or other organizational meetings required for your business entity. Be sure your attorney has provided you with the information you need to meet these requirements on starting your business and then annually thereafter.


• Consult with an insurance professional to obtain, if necessary, business liability and worker's compensation insurance.


• Establish a method to track your business income and expenses. Depending on the size of your business, a simple, easy to use tool like KeepMore.net will give you all the information you need to accurately track you eBay business activity. With the automatic import of all your eBay bought and sold items you save time and money. With its online application and backup of your information, you have peace of mind knowing that your data is safe and secure. With its auto mileage tracker, contact management and document storage tools, you have your entire back office solution in one place. And, best of all, you will have all the documentation necessary for a complete and accurate tax return. To learn more about KeepMore.net, please check our website at http://www.KeepMore.net/eBay/.


• Consult with your tax advisor about the advantage of hiring your spouse as your first employee.


• Start business operations

The checklist above is to be used as a guide; however, it is no substitute for legal, tax or financial advise that be furnished only by qualified professionals licensed to do business in your state.

Once you have opened your eBay account, you need to familiarize yourself with all the resources that are available through eBay.

The Community (http://hub.ebay.com/community) page provides links to valuable resources like the workshop you are attending today, a Help Center and Learning Center just to name a few.

The Site Map (http://pages.ebay.com/sitemap.html) gives you links to all kinds of valuable information including eBay Certified Providers (http://certifiedprovider.ebay.com) like SageFire with our KeepMore.net tool, WhatDoISell (http://www.whatdoisell.com/) with its product sourcing help, Terapeak (http://www.terapeak.com/) and Worldwide Brands (http://www.worldwidebrands.com/). You should take time to learn about all the resources available to help you succeed with your eBay business.

For additional information about owning and operating your own eBay business, we recommend the following:

• The Official eBay Bible, by Jim "Griff" Griffith, Dean of eBay Education


• The eBay Seller's Tax and Legal Answer Book, by Cliff Ennico, an attorney who specializes in legal and tax issues for small businesses and a popular instructor at eBay University and eBay live


• Small Business Survival Guide, Starting, Protecting, and Securing Your Business for Long-Term Success, by Cliff Ennico


• The Complete Idiot's Guide to Starting an eBay Business, 2nd Edition, by Barbara Weltman and Malcomi Katt. Ms. Weltman is a noted author, respected tax attorney, leading authority on small business and Guest Speaker at eBay Live. You can access her web site by clicking on the link below to sign up for free daily tips for small business owners and a free monthly newsletter.


http://barbaraweltman.com/