I’m an experienced Ebay user who has sold some stuff over the time on and off, but lately it is becoming more like a business and I have found that I can make a lot of money off from it. I know that I need a business license, possibly a reseller/auctioneer license for my city and will start up a home-based business of re-selling on Ebay.
I know that it would be best and easier to get a business checking account (I presume it has to be after getting the license, to show the bank proof to open the account). For what I do (buying and re-selling), a business credit card would be helpful. I have like 8 personal credit cards (only a few of them are actually used – the rest are $0 balance) and excellent credit. But how does my income get used for that? I work part-time (but full-time hours) for a retail chain as my main job. But my online re-selling would almost pay what my regular job does if I were to go full-scale on my online selling. When applying for a business checking/credit card account, can I use my personal income and business income combined? Otherwise, I have no real income to report since the business license will just be established right before opening the checking account. You’re not supposed to do business before the business license, so…how should this work?
Also, once I DO get a business checking or credit card account, there obviously won’t be anything in the checking account (apart from their required minimum to open the account) unless I pull from my personal savings gained through my retail job and put it in the business checking. Then that seems to throw things out of whack though, doesn’t it? What about when I need to use the income generated from my home business to pay personal bills and such for making a living? Is it okay to just draw that out or do I need to meticulously log each withdrawal for personal use, too?
There are a lot of questions in this topic to cover in a Y!A post. It really depends on how you plan on classifying your business and whether you plan on selling other people’s items or only your own items. You’re more than likely, if it is just going to be out of your home, best off just going at it as a sole-proprietor which makes your life a lot easier. If you plan on selling a massive amount of items or other people’s items on consignment (or you buy it from them for the purpose of reselling it) then you may start to want to look at shying away from the sole-proprietor and going at it as an llc or s-corp.
Unless you’re planning on incorporating (c-corp) your business or bringing in partners all of your personal income and income generated from the Ebay business are one in the same. They may be earned in different ways, but in the end the IRS doesn’t really care where the money in your bank account comes from if you are operating as a sole proprietor, llc, or s-corp; they only care that they get their share. This is a common misconception with people starting up small businesses like this and one I see a lot with the few small businesses that I help out with accounting wise. For a record keeping standpoint and making the tax returns go more smoothly it is definitely easier to keep money generated from work and a small business separate, but it doesn’t make any real difference as far the IRS is concerned for the majority of sole-proprietors; you claim all of your income on the same tax return at the end of the year; it just goes in different areas and on different forms.
If you want to do it the right way (as far as record keeping goes), regardless of how you plan on registering your business, then yes, you would want to use a separate checking account for your business. Most banks can open a business account as soon as you have the state registration number. As far as funding that? You’ll be using your personal income to start it off, it doesn’t matter really (as long as you aren’t incorporating). If you are going to track all of your expenses and incomes from the new business well then you can classify the money used to start up the business as an owner’s contribution.
You can use all of the income generated from your Ebay business for any expenses you want, just keep records of what you use it all for – record them as personal or business expenses. You also need to remember any income you generate from your new business you’re going to have to pay taxes on and how these are taxed, again, fall in to whether you plan on incorporating or not and there are some differences in taxes when it comes to sole-proprietorships, llcs and s-corps.
To sum it all up, no matter how you plan to register your business: Get the license. Use your personal money to start the new bank account. Dedicate one of your old, unused credit cards as one you use ONLY for the Ebay business. Keep decent records of your transactions – at a minimum at least keep track of money made on sales, money spent on the items you sold and have yet to sell, money spent on business expenses, and money spent on personal expenses. Most importantly: after obtaining the license and deciding how you plan to run your business (sole-proprietorship, llc, s-corp, c-corp), to have a consultation with a reputable accountant (CPA or CMA preferred) to sit down with you and go over EXACTLY what you will be responsible for as far as taxes and how you will be filing returns and point you in the right direction.
From the World Livestock Auctioneer Championship regional qualifier in Ogallala, NE.
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