Reader Q&A – Taxes and Bulk Sourcing

Dollar Flipper eBay Tips, Inventory Sourcing

As previously stated last week, I’ve taken a few questions from readers. If you have anything that you’re dying to know about, feel free to leave a comment or shoot me an e-mail through the contact form at the top of the page! We’re going to go over taxes and bulk sourcing from overseas here.

The first question is from reader Paul:

“I was just curious as to how your profits are factored in as far as taxes are concerned. Do you report your profits to taxes? And lastly, do you have an LLC for your business?”

 

IRS Sign

Insert Death and Taxes joke here.

Taxes – No one likes them – especially online re-sellers!

Update: I’ve started using GoDaddy Bookkeeping and it’s fantastic. Will remove the ambiguity.

Taxes are a tricky subject for a lot of online re-sellers. Amazon/eBay do not send a 1099 to the IRS until you’ve sold over 200 items AND had $20,000 in gross sales. I think this makes sense because there would be so many business deductions in the 20k that the end tax result might not be worth the IRS’s time. Right now, I’m not hitting huge numbers, but to cover my bases, I make sure to sell off items I’ve had around the house which I had purchased at full price. Since I’m selling them at a loss compared to when I bought the item, I’m sure that I can claim that difference and lower my actual taxable profits.

If I am going to get over those eBay and Amazon limits, I’d have to start tracking some more information. Before I moved, I was tracking every sale, and now I’ve started an inventory system that also tracks when an item sells. On top of that, when I buy, I try to put in a “this many items” number next to my purchase price. This lets me deduct an average cost of goods to deduct from any gross sales.

For general tax purposes, a lot of people recommend Go Daddy Bookkeeping (like the good people over at Scavenger Life who re-sell on eBay full time). I haven’t tried their services, but since so many people recommend them, it seems like the best option. They use a Mint-like interface that imports your transactions. You’re able to teach the system about which transactions are business related and which one aren’t, and then you can print out one form for tax season!

LLC – Not for me!

As to Paul’s second part of the question, I haven’t set up an LLC either. I don’t even have a tax ID for my business. A lot of re-sellers will start up a sole-proprietorship. This lets them avoid paying sales tax on lots of purchases since they plan on re-selling, but then they have to add sales tax on their sale, at least if it’s in their home state.

For me, it’s all about low risk. I have a hard time seeing a buyer suing me for some sort of issue with an item. If they did have an issue, they’d probably have to sue the manufacturer. We don’t sue Walmart if something we buy there catches on fire!

The next question is from reader Alissa

I was wondering if you ever bought anything in bulk online with the intent to sell it on eBay? Through various personal finance articles, I found a list of websites that sells things wholesale and/or in bulk directly to consumers. For example, there’s a site that’s selling 100 glass perfume bottles essentially at $1 a piece, and on eBay they’re being sold for $5-$20 each. There are obvious risks involved (buying in bulk – what if you don’t sell, takes up a lot of space, etc.). I was curious to know if you had ever tried a site like this and what your experience was, or if you avoid these for any reason. It seems like it’s one of those things that’s too good to be true, it probably is.

Bulk Sourcing – It depends on you!

OK, first, it’s not too good to be true. It’s a definite avenue for large scale profits. There are Pros and Cons with bulk overseas sourcing, and you need to decide if this avenue fits your personal business model and goals.

Alibaba_Corp._Taiwan_Grand_Opening

Alibaba is a huge company. On par with Amazon and eBay!

Pros

  • 1 listing – huge timing savings with listing on eBay or Amazon. You only need one set of pictures too.
  • streamline shipping – pre-package, buy shipping materials in bulk. Since you’re shipping multiples of the same type of item, you can buy specific packing materials in bulk, and you can also trim down your process too.
  • less time out sourcing – this is a pro for some and a con for others. I love going out to garage sales, so this would be a bummer for me, but I can understand why others find it so appealing.

Cons

  • storage and all of the associated costs of having to deal with a larger inventory
  • final cost – as sale price goes up shipping is less important. if you’re only looking at items in the $5-20 range, packaging and shipping will be a large portion of the cost.
  • test waters first – When I’m making a bulk purchase, I like to test the waters first. Instead of buying a huge bulk order from Alibaba.com, there’s also a smaller version called AliExpress. This lets you order the same items, but there’s smaller item limits on orders. The caveat is that the price is higher per unit.
  • limited market? This is a tough one. You may buy 10 perfume bottles to test the waters and sell out in 3 weeks, but who knows if that volume you sold is the top end? You may order 1000 and still only sell 3 per week. Your item may not be scalable and then you’ll be stuck with a large volume of a slow moving product.
  • large initial investment – even after testing the waters successfully, you’re going to have shell out some major dough – most likely on the 5-10k range. This is a lot of money for the hobby re-seller! I know I’m not going to be spending that type of cash on inventory! I have a big weekend dropping $200… I can’t imagine spending 5k!
  • not enjoyable – If you go down this route, you’re not very different from Walmart who buys most of their inventory overseas at really cheap prices. I’d much rather buy some cool/unique items and sell them for a big profit!
  • If you buy large amount you have tax tarrifs import fees. and US anti-dumping fees. These can add up quickly and aren’t always enforced, but that doesn’t mean you can ignore them. They can make a deal unprofitable really quickly!
  • You’re going to have to keep changing your model. You’ll have to keep finding the next hot item. As you make a profit, there will be others who see this and want to take advantage of the price mismatch. They’ll buy a larger order than you at a cheaper price per unit and will be able to sell at a lower cost. That’s the biggest complaint I’ve seen from FBA sellers. A lot of the popular items that are flipped are a race to the bottom. I’m not talking about unique books, but items bought at regular retail stores like Target.

So to make a long story short, you can definitely make money by buying from overseas and re-selling on eBay or Amazon, but it’s just not for me!

If you’re looking down this avenue, Skip McGrath is an invaluable resource. He seems like he’s at the forefront of bulk overseas sourcing, and he has a lot of new inventory sources in his bi-weekly newsletter! I haven’t bought any of his book products so I can’t vouch for them, but if they’re like his newsletter, they’re probably worth it.

 

Image Credit: By Joshua Doubek, Rico Shen