Expert: Marvinator - 12/7/2006

Question
I was offered an opportunity by a friend to go in together starting an online store on ebay however the vendor is requiring a tax id to be an authorized retailer.  What kind of requirment to the IRS and taxes do I have starting a 1-2 man business like that?  Do I have to collect sales taxes?  Could I just run the business for myself and consider all business income my own personal income and just list that on my tax return at the end of the year.  I don't want to do anything illegal or owe alot of money in taxes once I start this.  

Answer
Although this question has more to do with business than Ebay, I can offer you a bit of direction.  First and foremost, I am not a Tax Accountant, and if you really expect to make a good deal of income off this business, I suggest that the two of you sit down with one to create a good financial plan.  

Let's start with the vendor.  Vendors can ask what ever they want in doing business with you.  If they require your mother's maiden name, you had better plan on giving it or you won't be ordering from this vendor.  I know one vendor which has a contract that states in no uncertain terms that the product cannot be sold on any online auction or website.  But a Tax ID is a cheap item to get.  Your local state taxing authority can get you a business license and Tax ID.  Usually the fee is less than $50-100 per year.    You should plan on learning how to collect taxes (usually only on IN STATE sales) and paying this money to the Taxing agency.  

The IRS requires that you report any income over a certain amount.  They allow a small amount of income from a "Hobby" business which does not need to be claimed.  This amount is ridiculously low, in the area of $1800 a YEAR.  If you plan to make more than that, the IRS expects you to claim it on taxes.  If you DO plan to claim it on taxes, you might also want to take the time to learn about the tax deductions for home businesses, after all, you can't make money without spending it and any deduction you can claim which is legal is worth taking.  

Now, before I continue, let me point out once again that I am not a Tax Accountant nor a Legal Advisor.  I can offer a bit of insight into what other sellers have done in the past and what some are doing currently in this arena, but please do not misconstrue this as Legal Advice.  

Yes.  Currently, you can run your business without claiming any of the income to the IRS or the city or state in which you live.  I know a lot of people who do.  Your Ebay ID keeps your real name private and your auctions, fees and sales are only visible for up to 120 days on the system.  Any 'history' you have is totally yours to report or not.  Sellers do this all the time, some making pin money and others making a good living off the income.  Most that I know of have been doing this for years.  They run all the money through their personal bank account and they don't claim a thing.  The IRS knows this is an ongoing situation and is currently working hard to find a way around the anonymity of the Internet.  

Make no mistake, these people ARE breaking the law.  Should the IRS or the local taxing authority catch up to them, there will be fees and taxes to pay.  I'll let you decide how to proceed.