Protecting Your eBay Business from Audits

According to entrepreneur.com, the Internal Revenue Service (IRS) is going to be paying a lot more attention to small Internet-based businesses during the upcoming tax season, which means that eBay business owners need to start getting their affairs in order now. Whether you work alone or have ten employees, the products that you buy and sell through eBay should be properly documented and you should know exactly how much you've made since January. Following are a few helpful tips for protecting your eBay business from audits.

Protecting Your eBay Business from Audits: Start Filing if You Haven't Already

Every eBay business owner should have an easy-to-use filing system in order to operate efficiently. You can purchase small portable file boxes or a used file cabinet on - you guessed it! - eBay. Your files should include a folder for each user on eBay with whom you've done business as well as a file that contains your income and expense reports. If you have employees, keep files on each one of them along with their addresses, dates of birth and social security numbers. Keeping everything filed neatly away will help you enormously when it comes time to file your tax return.

Protecting Your eBay Business from Audits: Keep Sales Tax in a Separate Bank Account

If you are unlucky enough to live in one of the states where state sales tax is required, you should keep two separate bank accounts - one for the profits from your sales and another that holds the portion of sales that comes from sales tax. That way, you won't be scrounging around to come up with the money you need to pay your sales tax to the government when you file your state tax return.

Protecting Your eBay Business from Audits: Obtain Your Employer Identification Number

If you have employees who work for your in your eBay business, make sure that you have an EIN, which will be required when you file your tax return. In order to obtain an EIN, you will need to fill out an S-4 form at the IRS website (www.irs.gov) or you can call them and get a number over the phone at 800.829.4933. When you have employees working for you, your social security number is no longer sufficient for filing your taxes.

Protecting Your eBay Business from Audits: Hand Out W-4's

In addition to obtaining your EIN, your employees must fill out a W-4 so that you'll be able to figure out the required deductions on their paychecks. This is another step that you absolutely cannot skip.

Protecting Your eBay Business from Audits: Have Employees Fill Out Form I-9

In order to prove that all of your employees are legally eligible to work in the U.S., they must each fill out a Form I-9, and you should copy their Social Security Card (or Green Card) to staple to this form. Although you will not need to submit this form, you should be able to produce it if you are audited. The government requires that you keep it for three years following the hire of a new employee or one year following the termination of that employee.

Protecting Your eBay Business from Audits: Automate Your Taxes

Using tax-preparer software (unless you have a CPA) is the best way to guard against audits. Too many mistakes can be made when you perform your own calculations by hand, and a software program will ensure that you don't miss anything by guiding your through the process step-by-step. Turbo Tax, Quickbooks, H&R Block and tons of others provide this type of software for a relatively low cost.