Documenting Business Expenses And Profits For Online Sales From Home For Tax Time

Becoming an online merchant can be a lot of fun and bring some extra money into the household. This is one small business opportunity that many people have taken advantage of and have done very well with. The first year or so can be a struggle to earn a profit because of the expenses of getting started, but don't worry, you can recover some of that loss come tax time.

Create a Spreadsheet

You want to get organized as soon as you possibly can. If you haven't done so already, you must start a spreadsheet to keep very careful documentation of your expenses and profits. Your spreadsheet should include 7 columns:

1. Inventory number
2. Item title
3. Cost of the item
4. Cost of packing supplies
5. Cost of shipping
6. Fees associated with the sale – you may need more than one column to keep this element organized
7. Profit

Note: If you sell a variety of items, you may want to start different spreadsheets for different categories – clothing, toys, kitchenware, etc.. This will help to make it easier for you to find what you need when you sell the product and need to complete the input.

Document Your Mileage

If you go out looking for the things you will sell, document your mileage. If you drive to the post office to send the packages out, document your mileage. Any driving that you do to complete business-related tasks should be documented. Keep a little notebook in your car and write the mileage before you leave your home and again when you return. Take those numbers and input them on a separate spreadsheet. At the end of the year, you will be able to quickly look at that spreadsheet and know exactly how many miles you have driven for the business and claim it as a tax deduction.

Office and Storage

Unless you are completing your sales through drop-shipping methods, you will have inventory to organize. Have one area of your home dedicated to the organization of your inventory. This will help you in two ways – you can find what you need more easily and you can use the square footage of that space as a business write off.

Don't forget to document your home office expenses. You probably know that you can qualify for a home office deduction if you have an office that is dedicated to the business.

The most important element of successfully operating an online sales business from your home and being able to take advantage of the tax breaks is organization. If you are unable to stay organized on your own or just need a little help, talk with your tax preparation specialist or call HBE Becker Meyer Love LLP.