Board 8 > Any B8ers good with tax questions? (LLC vs Sole Proprietor)

(+) Yeah! (+)

So I started selling things on ebay in August and I expected to sell just a couple of hundred dollars worth of stuff a month and didn't even think of tax implications because I didn't think I'd sell enough for it to matter.

It's now 4 months later and it spiralled beyond what I expected as I just kept rolling all profits into replacement stock. I've now sold $27.5k worth of stuff ($8500 in last 30 days) and I'm still trending upwards. So at this point I can't not declare it.

I was told to look into getting an EIN which seems easy enough to do but I'm not sure whether I should do it as an LLC or as a sole proprietor. From what I understand if I do sole proprietor it just gets bundled in with my own personal taxes and if I do LLC it becomes its own entity? If I carry on at my current rate of expansion, I'll probably clear 150-250k worth of sales next year.

Does anyone know which would be the better route to go down in that scenario? And the pros/cons of each? I'm assuming I should do LLC?

Oh, I guess I should tag @DoomTheGyarados since I know you sell a lot of resale things and you may know what to do.

I'm going to say this as an owner of a small business.

Seriously just hire an accountant

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ShatteredElysium posted...

From what I understand if I do sole proprietor it just gets bundled in with my own personal taxes and if I do LLC it becomes its own entity

Also to answer this I believe you can tax an LLC as a sole propitiership anyways if theres only one owner. At the end of the day though both are taxed once. They aren't like a c corp where the corporation and the individual are both taxed.

I believe LLC actually gives you more options for taxation purposes but not sure if it would help you or not

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It sounds like you don't know a lot yet. What is best is going to depend on factors that we do not know, such as where you live, what your other income is, etc.

You should probably be asking somewhere else where you can get advice better tailored to your circumstances.
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Did research. I have to go with sole proprietorship for now as I've been using my personal bank account and credit cards so far for purchases.

If I go the LLC route I have to set up accounts and cards for the business and they can't mix. That may make sense down the line but I'm better off doing sole proprietorship for now and re-evaluate if I ever get big enough to warrant an LLC

KingButz posted...

It sounds like you don't know a lot yet. What is best is going to depend on factors that we do not know, such as where you live, what your other income is, etc.

You should probably be asking somewhere else where you can get advice better tailored to your circumstances.

Florida and it probably puts me into the 35% bracket.

Congrats on the nice sales, man. What is it that you sell?

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It probably won't make much difference this year, but you can get an EIN under either type and still file it with your individual taxes (as opposed to its own return), unless you add someone else to the LLC as previously mentioned.


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Just hide the money, who is gonna know

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Peace___Frog posted...

Congrats on the nice sales, man. What is it that you sell?

Shoes. I buy shoes from the Nike clearance stores (which are 5 and 20 minutes from my work) and just resell on ebay. Ebay doesn't charge selling fees on any shoes over $100 so I try to aim for stuff I can buy for $50 ish and sell for $100+ and offer free shipping. I usually make $20-30 per sale after shipping, paypal and promotion fees with the occasional $50-80 profit sale thrown in there.

There's multiple outlet places near me so I could easily expand into other stuff too but for right now this is purely me buying stuff on my lunch break or way home and dropping off at the post office on the way to work

ChaosTonyV4 posted...

Just hide the money, who is gonna know

Ebay and PayPal submits paperwork if you exceed $10k passing through your account annually so they would catch up with me eventually.

From the info you've given, filing as an LLC vs a sole proprietor won't make much (any) difference from a tax perspective. Even if you set up and separately file an LLC tax return, the profits will flow through to your individual tax return (hence the term "pass through entity") and be taxed at your individual tax rate. For a sole proprietor, the benefits of creating an LLC are often legal, since as the name implies, you can limit your individual liability through an LLC.

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CaptainOfCrush posted...

From the info you've given, filing as an LLC vs a sole proprietor won't make much (any) difference from a tax perspective. Even if you set up and separately file an LLC tax return, the profits will flow through to your individual tax return (hence the term "pass through entity") and be taxed at your individual tax rate. For a sole proprietor, the benefits of creating an LLC are often legal, since as the name implies, you can limit your individual liability through an LLC.

This. You'll be filing a Schedule C either way, but it might be worth it for the liability issues. Speak to an accountant or lawyer.

Also, either way, you should definitely have a separate bank account and credit card for this. It'll make the accounting work easier and having everything mingled together will be an issue if you get audited.

ChaosTonyV4 posted...

Just hide the money, who is gonna know

I can confirm this is a terrible idea.

The 1099-K will get reported to us and the AUR department will pick it up. The worst part is that it might not even get picked up right away, and by the time it does you're getting letters about your taxes from 2 years ago with a $5,000 balance due (+ 2 years of penalties and interest). So you have to find a way to pay that while knowing that your 1 year ago taxes are a ticking time bomb waiting to trip the same red flags.

And chances are this will put you in a position where your tax liability at filling will be over $1000 so you'll need to make quarterly payments to estimate and pre-pay your expected taxes if you don't already do that. Most people count on the withholding from their regular employment to cover everything so chances are you don't.

But congrats on the extra source of revenue! From the sounds of it the benefits are going to out weigh the additional hassle.

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I don't think Tony was serious

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I didn't think he was but I think it's important to reinforce what an awful notion it is. I field calls from people who become financially ruined by their tax debts incurred for that very thing.

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Not only was I serious, but I'm willing to be an accomplice.

Send the money to me and I'll keep it safe.

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