Financial Articles

QUESTION: I’m a part-time “hobby” seller of used books on Amazon and eBay. Do I need to pay income tax on the sales I had last year?ANSWER: Yes, you are required to pay federal income tax and self-employment tax on your net income from selling used books online, whether you sold them on Amazon, eBay, Half.com, ABE, Alibris, or any other venue.

Yes, you are required to pay federal income tax and self-employment tax on your net income from selling used books online, whether you sold them on Amazon, eBay, Half.com, ABE, Alibris, or any other venue.Since you don’t have an employer reporting your bookselling income and withholding a portion for taxes, you must inform the IRS about it yourself. It makes no difference that you consider your bookselling a “hobby.” If you’re making a profit, the IRS considers it a business, and wants its cut.

I’m assuming you won’t be incorporating your business, so you’ll need to report your bookselling income as a “sole proprietorship” on the long tax form, IRS Form 1040, Schedule C, “Profit or Loss From Business.”

You can report your self-employed income using the personal editions of TurboTax or TaxCut software. These programs can save you lots of time, since they give instructions in plain English instead of the bewildering jargon of IRS instruction manuals.

If you made a profit during 2005 from bookselling, you’ll also owe some state income tax for that, so I’d also recommend you also use the state version of TurboTax or TaxCut to figure your state tax obligation.

To complete your tax return, you’ll need to account for every transaction involving your book business. If you’re not already doing so, keep all your receipts and records, and put your expenses into categories such as “postage,” “shipping supplies,” “books,” and so on. This is the information that will go on your Schedule C.

Next year, don’t wait this long to get your affairs in order. With self-employed income, you’re supposed to estimate your tax obligation during the year, and make quarterly payments on your profits, submitted with Form 1040-ES, by April 15, June 15, September 15, and January 15 of the following calendar year. Since you didn’t do this during 2005, you may owe a penalty for late tax payments. If you were expecting a tax refund this year, it may be smaller than you thought.

For next year, I’d recommend you have a separate checking account to track expenses and income from your bookselling. If your bank enables you to download your transactions into Quicken or another personal-finance program, you can automatically categorize expenses such as “postage,” etc., in Quicken. And next year you can transfer this same data into your tax-prep software. This will greatly lessen your bookeeping chores next year, and also give you a handy tool for examining the performance of your book business.

Read more free articles on selling used books profitably online: http://www.weberbooks.com/selling/selling.htm

Steve Weber is author of “The Home-Based Bookstore: Start Your Own Business Selling Used Books on Amazon, eBay or Your Own Web Site” (ISBN 0977240606). Got a question for Steve? Send to: steve_weber@yahoo.com

Can’t remember how many times I’ve been asked “What is a reverse mortgage”? Reverse mortgages are a great way to get a loan using your primary asset. As in all cases of financial lending, the flexibility comes at a price. A reverse mortgage is a loan using your house and is referred to as a “rising debt, falling equity” kind of deal.

To compare reverse mortgage to a more traditional one, the type of mortgage commonly used when buying a house can be classed as a “forward mortgage”. To qualify for forward mortgage, you must have a steady source of income. Because the mortgage is secured by the asset, if you default on the payments, your house can be taken from you. As you pay off the house, your equity is the difference between the mortgage amount and how much you’ve paid. When the last mortgage payment is made, the house belongs to you.

On the other hand a reverse mortgage process doesn’t require that the applicant have great credit, or even that they have a steady source of income. The major stipulation is that the house is owned by the applicant. Generally, there is also a minimum age required as well, the older the applicant, the higher the loan amount can be. As well, reverse mortgages must be the only debt against your house.

Differing from a conventional “forward mortgage”, your debt increases along with your equity. Instead of making any monthly payments, the amount loaned has interest added to it - which eats away at your equity. If the loan is over a long period of time, when the mortgage comes due, there may be a large amount owed. Furthermore, if the price of your home decreased, there may not be any equity left over. On the flip side, if it was to increase, this could allow for an equity gain, but this isn’t typical of the marketplace.

When deciding how to draw money from the reverse mortgage, there are a few options; a single lump sum, regular monthly advances, or a credit account. There are conditions in this kind of mortgage that would warrant the immediate repayment of the loan; the mortgage will be due when the borrower dies, sells the house, or moves out.

Failure to pay your property taxes or insurance on the home will undoubtedly lead to a default as well. The lender also has the option of paying for these obligations by reducing your advances to cover the expense. Make sure you read the loan documents carefully to make sure you understand all the conditions that can cause your loan to become due.