Know the tax rules for selling online

Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.

From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the loss. When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.

Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.

Online selling activity can reach the point where it is deemed to be a business venture. Status as a for-profit eBay business versus a casual online seller is not clearly defined. Factors considered by the IRS include the amount of time you spend selling online and whether you conduct yourself like other self-employed business owners, such as keeping accounting records and advertising your services.

The good news is that if you are treated as a business, you can deduct expenses related to your selling activity. The downside to business status is that profits from selling online may be subject to self-employment tax. What's more, depending on where you live, you may have to deal with sales taxes.

Taxpayers who operate like a business, but rarely show a profit, may be treated as hobbyists. In this scenario, losses can only be deducted to the extent of gains.

Whether you are an infrequent user of online auction sites, or an all-out eBay business owner, you cannot afford to ignore the tax implications of selling online. For the details you need to avoid tax problems, call our office today.

Selling vacant land could bring a tax break

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.

Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.

Employee attitudes affect customer service

The quality of the customer service your company provides will have an effect on the net profit of your business.

Even with the best of intentions, many companies only give lip service to this very critical area. It is necessary that every employee be tuned in to how he or she can contribute to outstanding customer service – the kind of customer service that keeps customers coming back again and again.

"Customer service" includes every element of the sales transaction between your business and a customer. Though you may consider customer service just a matter of being polite to customers, it actually involves many areas, including the following:

* Being truthful in advertising your product or service.

* Providing a product or service that meets or exceeds customer expectations.

* Being prompt in delivering your product or service.

* Letting customers know you appreciate their business.

* Handling customer complaints or other concerns promptly and politely.

* Being polite and cheerful in dealing with customers – even when they are "just looking" instead of buying.

Every one of your employees should be able to compile a list of the behaviors that contribute to good customer service in your specific line of business. Have your employees bring their lists to a staff meeting and compare notes. Discuss the areas where your company could improve customer service. Then decide on specific actions to take and decide who will take them and when. It's important to follow through to be sure that the changes you decide to make are actually made.

Get your employees involved. Be persistent and consistent in improving customer service. Your net profit will show the positive results of your efforts.

Take some of the sting out of a 401(k) loan

When your financial situation leaves you no other choice but to borrow from your 401(k), there are a few things you can do to make the situation better. Consider withdrawing the funds from the cash or fixed-rate portion of your plan's portfolio. This may leave higher-earning investments at work. Try to pay off the loan as quickly as possible, and continue making regular plan contributions in order to take full advantage of your employer's match.

Don't overload on company stock

Don't invest too much of your 401(k) plan contributions in your company's stock. Remember, even if the company is doing well now, things can change. And if the worst happens and you lose your job, you don't want to lose your retirement savings too. If your employer used company stock for the matching contribution, you may have no choice. But at least you can select other investments for your own contributions.

Classify workers properly

Don't subject your business to tax penalties by misclassifying an employee as an independent contractor. The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. If you're not absolutely sure how to treat a given worker, contact us.

FBAR deadline is June 30

If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It's easy to overlook this requirement because it's separate from your federal income tax filing, with a different deadline and strict rules.

FBAR refers to "Form 114, Report of Foreign Bank and Financial Accounts." That form is new this year, replacing the prior Form 90-22.1.

Your 2013 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2014. No filing extension is available. Contact us if you need details or filing assistance.