3 Types Of Taxes To Be Aware Of When Selling Online

Posted on: 4 June 2018


If you sell items online through a service such as Etsy, eBay, Artfinder, or a similar website, you need to make sure that you are aware of the different types of taxes that you have to collect and pay. If you are making a profit off of your online business on a consistent basis, and you are using the online service as a way to do business, not as a small side hobby, then you need to make sure that you are collecting and paying the right type of taxes.

Self-Employment Tax

If you are paying yourself and getting all or part of your income from your online business, then you are going to need to pay a self-employment tax on all wages that you pay yourself. If you earn over $400 dollars a year, you are going to have to pay self-employment tax.

For the self-employment tax, you are essentially paying the tax that your employer would usually pay and that would be taken out of your paycheck in a regular job. You are paying part of your income towards Social Security and Medicare. For 2018, you have to pay 15.3% total in Social Security and Medicare for the first $128,400 of income that you earn. That means for an income of $128,400, you would need to set aside $19,645.20 to cover your self-employment tax.

If you earn more than $128,400, all income past that amount will only be taxed at 2.9%.

State Income Tax

If your state has an income tax, which most states do, you need to figure out if the goods you sell qualify for your state's income tax. If they do, you are going to need to pay a set percentage of your profits to the state that you live in. An accountant can let you know how much you need to set aside for state income tax.

For example, if your business brought in $20,000 in profits last year, and you have a state income tax of 5%, you would need to pay $1,000 in state income taxes on your profit.

State Sales Tax

In addition to state income tax, you may need to collect state sales tax, as well. State income taxes, and the need to collect them, can vary based on where you are located and where you are selling to. Most online platforms will help you figure out what states you need to collect sales tax for. However, if you need further assistance with this aspect of your business, talk to an accountant who specializes in helping clients who sell online.

Make sure that you are collecting and paying the right amount of taxes throughout the year for your online business. This will save you from facing a big tax bill at the end of the year.

For more information, talk to companies like Blueback Accounting.