- I've Got This Other Business ...
- Selling on eBay as an Extension of an Existing Brick-and-Mortar Business
- Q: "I have an incorporated brick-and-mortar retail store and only recently began selling on eBay. Does it make sense to have a separate legal entity set up for my eBay business? Should I keep separate accounting and bookkeeping records?"
- Running Several Different Businesses Simultaneously on eBay
- Q: "I run several different businesses on eBay. Do I have to file a Schedule C for each one?"
- Q: "I sell laptops on eBay, and my wife sells children's clothing. We have separate eBay user IDs but have been combining all our sales proceeds in the same checking account. Does it make sense to put these in the same business or eBay Store?"
I've Got This Other Business ...
Selling on eBay as an Extension of an Existing Brick-and-Mortar Business
Q: "I have an incorporated brick-and-mortar retail store and only recently began selling on eBay. Does it make sense to have a separate legal entity set up for my eBay business? Should I keep separate accounting and bookkeeping records?"
A: It depends. If you are selling the same type of merchandise on eBay that you sell in your brick-and-mortar store, there is no compelling reason to have a separate legal entity for your eBay business. As long as you make sure your buyers on eBay know that they are dealing with your corporation or limited liability company (LLC), and not you personally, you should be sufficiently protected against any legal liability arising from your eBay selling activities. For example, your eBay user ID should be registered to your corporation, not you personally, and your About Me page on eBay should clearly state your corporation's name. I would also include a picture of the brick-and-mortar store, as it is always comforting for buyers on eBay to see that you are a real business that has been around for a while.
It may make sense to keep separate accounting and bookkeeping records for your eBay business, as that will make it easier for you to figure out how successful your online selling activities are vis-a-vis your brick-and-mortar store. You may find out, for example, that certain items are selling much more briskly on eBay than in your brick-and-mortar store or that your profit margins for certain items on eBay are greater than they are elsewhere. It's difficult and time consuming to do that when all your records are lumped together and you have to break everything out separately. I have actually known people who have shut down their brick-and-mortar stores entirely once they have become successful selling online!
Running Several Different Businesses Simultaneously on eBay
Q: "I run several different businesses on eBay. Do I have to file a Schedule C for each one?"
A: Assuming that you are the only person involved in each of these businesses, the short answer is no—you can lump them all together on a single Schedule C and use the same federal and state tax ID numbers for each business.
The only time you should seriously consider separate Schedule Cs (and separate tax ID numbers) is when the businesses' income and deduction profiles are sufficiently different that separation gives the IRS a more accurate picture of what you are doing.
Let me explain...
A lawyer who has her own solo practice generally does not have much in the way of travel, meals, and entertainment expenses to deduct on her tax return. Even if she travels extensively, her clients normally pick up the tab for her meals, entertainment, and so forth. If the lawyer claims too much in travel, meals, and entertainment expenses on her tax return, she exposes herself to audit.
A professional speaker, on the other hand, normally has a considerable amount of travel, meals, and entertainment expenses. He is constantly on the road, and often the organization that's sponsoring his talk doesn't reimburse all of his travel, meals, and lodging. Most professional speakers I know keep detailed records of their expenses for tax time.
So a solo lawyer who is also a professional speaker has a bit of a dilemma: If she lumps her two businesses together on a single Schedule C, she will show a significant amount of travel, meals, and entertainment deductions, which might raise a few eyebrows at the IRS. She probably would be better advised to get a separate federal tax ID number for her professional speaking business, file two separate Schedule Cs, and allocate all of the travel, meals, and entertainment deductions to the professional speaking Schedule C, not her law practice Schedule C.
If you are engaged in multiple businesses that have different profiles for income or deductions, then you're well advised to file separate Schedule Cs for them.
One last point: If you have businesses with separate federal tax ID numbers, you must file separate Schedule Cs for each of them. You cannot combine multiple tax IDs on a single Schedule C or disregard one of the ID numbers—even if one of your businesses made no money this year, you should file a Schedule C for that business (and that tax ID) consisting of zeroes on each line. Once you obtain a federal tax ID number, the IRS expects to see a tax return for that number each year.
Q: "I sell laptops on eBay, and my wife sells children's clothing. We have separate eBay user IDs but have been combining all our sales proceeds in the same checking account. Does it make sense to put these in the same business or eBay Store?"
A: It's a good idea to have separate eBay user IDs when you sell radically different merchandise on eBay. People are a little nervous about buying children's clothing from "bikerguyi23," or a laptop computer from "suziesfantasies," even if those sellers have excellent feedback. That doesn't mean, though, that you have to treat them for tax purposes as two separate businesses.
What you have here is an informal partnership with your wife to sell things on eBay. As far as I'm concerned, that's just one business, even though you have multiple user IDs or eBay Stores. You should file IRS Form 1065 (partnership tax return) each year—although some accountants believe that's not necessary for a husband-and-wife partnership—and the corresponding tax form required by your state tax authority (if your state has an income tax). You should also have a federal tax ID number for the business, as the IRS allows only sole proprietors and other single-person businesses to use their Social Security number as a tax ID.
Now, I think it makes perfect sense to have separate eBay Stores for your laptops and your wife's clothing—in fact, I think you would be crazy to put both lines into a single store, because it would confuse your buyers. If you are selling lines of merchandise that have synergy—meaning that people who buy one line normally buy the other so you can cross-sell them—then putting them in the same eBay Store (or perhaps linked stores) makes some sense. I don't see much synergy, though, between laptops and children's clothing. Those two stores are going to look very different and will optimize very differently for search engines, if they are designed properly.