Help? How to get taxed based on your profit and not your sales?
I buy and sell phones for profit. The business is amazing and effective. However I seem to be worrying about a little issue. The thing is I just turned 18 and my goal this year is 75k profit, which seems completely doable in my area. I have to worry about taxes this year. I use paypal to do my business transactions when selling to private buyer, not buying. If I buy a phone for 200 locally with cash I would tend to sell it for 350 on average through paypal, and receive 350 through paypal. So on a larger scale, if I spend 20,000 my sales would usually be around 30,000. That’s 15k profit but since I am using paypal, they keep track of sales and have no clue about how much I spend so they would think that I am making 30,000. How can I convince the bank or paypal about the actual profit I make? How do self employed resellers prove to banks how much they spend and how much profit they make? I actually bring a bill of sale on every time I buy a phone from someone. Is this good proof to show to a bank manager/accountant about how much I spend? Assuming I do reach my goal and make 75,000, the IRS taxing me for 200k-250k sales is the last thing I would want. I know the numbers seem a bit unrealistic for an 18 year old but I am dedicated to this business and I already started bringing in about 1,500-2,000 a week. Any advice would be appreciated before it is too late.
- Anonymous5 months ago
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- STEPHENLv 75 months ago
You don't have to do anything to get taxed on profit rather than sales. That's how the tax system works. Tax is on profit, not on sales/turnover.
- JohnLv 76 months ago
You have come up against the problem with cash, in business. You can buy and sell with cash without problems. Though of course you are supposed to report everything, wink, wink. You can run a business by checks with no problems either. It you try to mix the two is when you run into issues. Walgreen's takes in cash because they report it as income, BTW. You have no record of your purchases and therefore you can't deduct your costs. You just can't. And the problem there is worse because it's the whole point of paying cash - the sellers don't want to sign a receipt for you. So you are stuck with paying taxes on your gross receipts until if and when you buy your stock through regular channels with checks and deductible receipts. Welcome to the world of business.
- 6 months ago
If you're serious about your business, hire a professional to help with bookkeeping, accounting, and tax preparation. You're great at buying and selling for a profit, wonderful. You don't have a clue what's going on with tracking your profit or loss or preparing your tax return. For your own sake, please don't be stupid enough to buy some tax program and think that's going to turn you into a tax expert. That's not how it works.
Most lenders want to look at tax returns for verification of income. The level of professionalism when they're looking at financial statements and tax returns is probably just as important was whatever figures are shown.
Lenders can spot do-it-yourself financial statements and tax returns from a mile away. If you submit DIY statements, they'll blow you off as not serious.
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- EvaLv 76 months ago
Paypal doesn't care anything about your profit. Their job is to keep track of and report your sales. The bank doesn't care either. You need receipts for EVERYTHING you buy and can deduct for tax purposes. Make a consultation appointment with an accountant to show you how to set up a bookkeeping system, review what expenses are deductible, and what your tax responsibilities will be (a lot).
- StephenWeinsteinLv 76 months ago
You don't convince the bank or Paypal because they don't tax you and they don't need to know the actual profit.
When you do your taxes, you must tell the IRS how much you sold, how much you spent, and what the profit was. You must keep your proof, so that you have it available if they ask for it later.
- ntLv 66 months ago
You do your taxes, you don't have to prove anything to your bank or paypal.
- danxp2Lv 66 months ago
If you made profits before 18 that income is still taxable for however many years you have been doing this.
Outside of that, to answer your question how do you track expenses when buying in cash get itemized bills of sale signed by the seller confirming what you purchase. Keep the physical copy in cronological order in some sort of filing cabinet. Scan them as back up, and track your income and expenses enter purchases and sales in QuickBooks or similar software, or pay someone to do so.
PayPal will report income they don't care about your expenses unless you are looking for a loan. If that is the case then PayPal will let you know what they need, same for the bank(s).
A local CPA firm to get any financial statements prepared you need, they can also help you file a tax return where you report your income with your expenses so you only get taxed on the profits... and the self employment taxes. If you are audited the you have the bills of sale to prove your cost of goods sold.
- A HunchLv 76 months ago
You don't "convince your bank or paypal"
You complete a Schedule C when you do your taxes which includes the cost of goods sold.
You need to keep accurate records of EACH transaction:
- I purchased the phone for X
- I sold it for Y
- The difference is your profit on each transaction
Your total profit is profit of cost of goods sold minus other business expenses. This is the amount you pay taxes on.
Assuming you are making $150 on each phone, you are going to have to have over 500 phone sales in a year.
Right now, it seems like like you are selling about 5 per week which will be 260 in a year = $39,000
- SlumlordLv 76 months ago
You don't have to prove to the bank or paypal what your expenses are, just to the IRS. Just hold onto all receipts, total them up and on your tax forms fill in what you paid for the phones as expenses.