If you are a seller on eBay, Amazon or other online retail platforms, you need to pay income tax on profits from sales if they surpass a certain threshold. Beginning in 2011, online businesses such as Amazon are required to file 1099-K forms for those who earn beyond $20,000 in gross sales or have 200 transactions in a calendar year using their platform.
You do not need to worry about taxes if you are an occasional seller and do not make a substantial profit from your sales. Also, if you sold items for less than the purchase price, then you need not report the sales on your return.
Who is Required to Pay?
If you have consistent or recurring sales, and you run the activity like a business with an intention to make a profit, then you need to pay income tax on your sales. The income you earn is considered ‘income from self-employment’. Therefore, you are required to fill Schedule C, Profit or Loss from Business of Form 1040. Schedule C is used to report profit or loss from a sole proprietorship. If you do not run a registered corporation, then you need to use Schedule C to report your profits or losses to the IRS.
Along with income tax, you also need to pay sales tax. The seller is responsible for collecting and paying sales tax. Therefore, you are required to charge sales tax from your buyers and transfer it to the state taxing authority.
Paying Estimated Taxes Quarterly
If you haven’t been paying taxes on your online income, you may pay estimated taxes quarterly to avoid IRS penalties and collection actions for non-payment of taxes. If you think that you will owe more than $1,000 in taxes in a year, the IRS prefers that you pay your taxes every quarter. The deadline for making quarterly payments for this year will fall on September 15. The remaining three deadlines will fall on January 15 (2016), April 15 (2016), and June 15 (2016).
To pay your estimated taxes quarterly, you may electronically file and pay your taxes through the Electronic Federal Tax Payment System (EFTPS), or fill Form 1040-ES and mail it to the IRS. You may also pay taxes over the phone.