In part one of this ebay article series we introduced you to the importance of keeping a proper paperwork trail of everything pertaining to your ebay home business profits. We discussed how keeping detailed records of every area of your ebay home business was not only beneficial for tax purposes but at the same time it is the only way to seriously track and tweak your ebay home business for long term success.



Also in part one, we then closed the end of the ebay home business article by explaining the definitions of gross profit and gross profit margin. These two categories of incoming profits are important to help you understand what you are earning and which direction you want those earnings to go in.

Before you get bored again, let me remind you that I know you would rather be talking about selling and spending all of the millions you will make with your ebay home business! But trust me, these dry topics on paperwork, records, and taxes are exactly what you need to become an expert at in order to create long term stability with your ebay home business.

Ok, back to business. In today's article we are going to help you understand your tax responsibilities. If you were like me at the beginning of my ebay home business, then you probably can find any reason possible NOT to go through the trouble of keeping formal bookkeeping records of your ebay business. Unfortunately for us small business people, the IRS tax law overrules whatever reason we have to justify not keeping the books up do date for our ebay home business. The law states that you must keep very detailed records of your ebay income, your ebay expenses, your assets, and even your liabilities.

By keeping these ebay home business records accurately recorded, you will be enabled to properly report on your tax return every bit of income that comes in from that ebay home business. You will also then be able to claim any and all write-offs that are connected to your business.

What are "Write-offs"? They are deductions that you can subtract when having the tax paperwork completed for your ebay home business. Let me give you an example:

Let's say that you sell Antique products as your main source of income for your ebay home business. Each day you get in your car and drive around town and visit flee markets, swap meets, and yard sales to find hot deals on Antiques. You will then turn around and resell these same Antiques on Ebay for big time profits. Your tax responsibility here is to keep track of the exact mileage you used up in your vehicle. This information can be used as a tax write-off. And of course don't forget to save your gas receipts for extra tax benefits!

Next I'm going to bring up an ugly word that give many ebay home business owners the chills. The "audit". If you are unfamiliar with the term audit or have never experienced getting audited then allow me to explain it to you.

As much as you may not like their reach of power, the IRS has the legal right to view all of your ebay home business records if they should ask. This is not an assumption, it is the truth. Should this happen, then you will be what is called "audited". And if you are one of those unlucky ones that are audited then you had better be prepared with detailed, complete, and truthful business records. You do not want to have missed important tax claims or filed inaccurate reports in the past because if an audit should happen then those negative actions could jeopardize your ebay home business.

Last but not least, we are going to leave you with understanding what financial type records that you will need to show to a bank if you are applying for a loan to help expand and grow your ebay home business. The first one is called a balance sheet. The second is called an income statement.

Income Statement: An income statement consists of a list of your assets, liabilities and what you have invested into your business. And by the way, any amount of funding that you "invested" into your ebay home business is called equity.

Income Statement: This statement is simply a list showing all of the income and all of the expenses of your ebay home business within a specified period of time. This "specified period of time" is usually quarterly or yearly, depending on how often you attend to your taxes.