eBay Sellers of the Bay Area: Meetup Round-up

A huge Thank You to Outright.com and the eBay Sellers of the Bay Area organizers for an incredible Meetup last night!

It was a full house and packed agenda, and yet we were engaged for more than 2 hours, with networking afterwards. Our first presenter was Laura Messerschmitt of Outright, who spoke on some key basic points of tax information for eBay sellers. Next was the Seasonal Seller Panel (eBay sellers Sherry Gilson, Marianne Taitano, and Serena Lee plus Bradley Hazelrigg from eBay's Seasonal Selling Team, which explored retail seasons beyond the winter holidays. Our last presenter was Rick Matsura from eBay's Seller Protection Team.

What follows is a quick summary of the key take-aways I picked-up from each presenter.

Tax Information

• Estimated Taxes: As soon as you will owe more than $1,000 in taxes, you need to start paying estimated taxes (payments are due JAN 15, APR 15, JUN 17, & SEP 16 in 2013). This usually kicks-in after $5,000 in  profit. Note: these deadlines are for sole proprietors with a schedule C, corporations have different deadlines and filing requirements.
• Shipping/COGS: If you offer free shipping, it is OK to include shipping cost as a Cost of Goods Sold (COGS) so you can better understand your margins. More conservative accountants will advise this course of action. However, booking this as an expense is not wrong.  At the end of the day, the tax effect is exactly the same so the IRS does not worry too much either way.
• Mileage: The most frequently missed expense, not claimed by eBay sellers in a recent Outright survey, was mileage. Keep track of mileage, log-in every time you drive for your business (going to the post office, going to buy shipping supplies, thrifting...) and you can deduct 56.5 cents per mile for your 2013 taxes (mileage value is determined by the IRS). It is usually a greater deduction to take mileage, than to calculate exactly the cost of gas, cost of car maintenance, what percentage of that was for business vs. personal use...
• Home Office Deduction:For 2013, the IRS will allow people who work from home to take a flat $1,500 deduction for the home office if they prefer, rather than calculating exact square footage of the home office as a percentage of the entire home and what percentage of expenses can be deducted and maintaining records of proof.
• Avoiding Audits & the 1099-K: The IRS has explicitly warned of a definitive audit trigger, Laura M. told us how to avoid it. When you get your 1099-K from PayPal (Amazon, Etsy...), Double-check that the amount of income you report on your Schedule C, line 1, is EXACTLY equal to or greater than the amount of income reported on your 1099-K.  If the amount on your schedule C is as much as 1-cent below what PayPal (etc.) reports, you have an audit trigger.
• PayPal & the 1099-K: Laura M. reminded us that we pay income taxes on profits, not revenues (profit = revenue - expenses). The 1099-K from PayPal will include any and all revenue received during the year, including sales that were later refunded, fraudulent payments that were later revoked, shipping income received from buyers, and sales tax payments received from buyers. Many of these income categories have contra-accounts to track the expenses (sales tax paid to the state, shipping expense paid, return refunded) so remember to track each and every expense possible to minimize your tax burden.

Seasonal Selling

• Generally, list seasonal items 4-6 weeks before the holiday. The exceptions seem to be Christmas and Halloween specific items, which will sell year-round. 
• Also 4-6 weeks out, add holiday-specific keywords to  listings that fit (such as Valentine's Day for red dresses).  Remember after the holiday, to re-edit these listings to remove the holiday name.  Auctiva's free Find & Replace tool makes this easy.
• eBay focuses their holiday promotion marketing around four key holiday/seasons: 1) Valentine's Day, 2) Mother's & Father's Day, 3) Back to School, and 4) Winter Holidays.
• Under-promise and over-deliver for happy customers.
• 50% of gifts are bought the week before Mother's Day (opportunity: Offer 1-day shipping), 9% are bought the same day, 80% of Americans will celebrate Mother's Day each year, and the average spend is $152.
• Men spend twice as much as women on Valentine's Day.
• Remember seasons are not the same everywhere, Christmas is in the summer in Australia.  
• It's a good keyword practice to use international versions of keywords.  For example, in the UK they wear "jumpers" not "sweaters".  Put both words in your title if you ship internationally.

eBay Seller Protection

• eBay has a team dedicated to protecting sellers from "bad" buyers.  They are working to deliver quality buyers to us, the sellers.  We can learn more at www.ebay.com/sellerprotection.
• The Seller Protection Team is strongly encouraging sellers to report buyers when their behavior is suspicious or problematic.  They have made this very easy, and now include a "report this buyer" button on the leave feedback page.
• When you report a buyer, this is anonymous to the buyer.
• At present, eBay is not penalizing or investigating sellers who report a high-number of buyers.  There is no danger or disadvantage for the seller to report buyers for bad behavior.
• Every bad buyer report is reviewed by buyer abuse detection software.  If evidence for suspicious behavior exists (such as a pattern of the buyer getting a lot of partial refunds, for example), the automatic process will flag the account for a manual review.  Right now, 30% of all reports are manually reviewed.  A first report questionable/bad behavior of a buyer probably will not flag a manual review.
• Since eBay made the "Report a Buyer" process more easily accessible, the number of actions to report buyers increased by 80%, and there was a nearly 10% increase in the number of buyers suspended.
• The Seller Protection Team uses "multi-account" detection software, to help protect sellers from buyers who use multiple eBay Buyer IDs.

Hiring Help - Advice for eBay Sellers

24-hours.  That's it.

That is all the time we have each day to work, play, eat, sleep, laugh, cry, and love. 

As entrepreneurs who are starting, maintaining, or growing our own businesses, we all will reach a point when we simply can't get any more work done in a day. We plateau. When that happens, if we want to grow further we need to hire help.

The IRS deems someone is an employee if "you can control what will be done and how it will be done".  

The person is generally considered an employee by the IRS if you control any of the following (this is not a complete list):

• What tools or equipment to use;
• Where to purchase supplies and service;
• What work must be performed by a specified individual;
• What order or sequence to follow when performing work;
• You give highly detailed instruction as to how the work is completed; or
• If you have an evaluation system in place to measure the details of the work performed.

If the person is an employee, you will need to (at a minimum) withhold employee federal and state income taxes, Social Security and Medicare taxes from the employees pay, and you pay a matching amount of Social Security and Medicare taxes yourself.  There may be additional state withholding and filing requirements, depending on where you operate your business.

Other employee expenses which may be required by law are unemployment insurance and workman's comp insurance.

It is tempting to hire "under the table", because employee expenses can get add-up quickly.  Please, for your own sake, don't consider this a viable option.  If you hire someone this way, it could be an absolute disaster if you have to fire that person later. S/he may report you to the state or to the IRS.  If that happens, you could end up paying back employee taxes plus penalties.

One way to get help without the expense of payroll is to hire unpaid interns.  This can be a great way to find someone who would be a good fit for your business without expense, while you mentor this person so s/he can learn valuable work skills that can be taken to new jobs after graduation.

The U.S. Department of Labor laid out very strict guidelines on what is allowed for an unpaid internship.  You must meet all six of the following tests:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to waged for the time spent in the internship.

A note on #6.  While they are not entitled to wages, you can reimburse the intern for expenses related to their internship, such as transit passes or providing lunches.  A nice "thank you" gift at the end (gift card?) is also very appropriate.

When I started to grow my business, I brought on interns.  At the end of the semester they liked the job so much, and I was very impressed with how well they were doing, that I was able to offer them both a formal paid position (with all the expenses and taxes that go along with it).  This was a win-win, because when they were converted to paid employees, they were completely trained and I got a great ROI (return on investment) in their salaries immediately.  Over a year later, these same two ladies work with me today!

Some colleges have work-for-credit programs, so the students earn college credits while working for you.

Bringing  on to work with you for the first time can be daunting.  Consult a CPA or small business attorney to make sure you are in compliance with all local and federal employment laws.