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Federal Tax vs State sales tax
 

I was reading the closed thread posted by Jamesnorth.
Not all incoming deposits into your bank account is taxable income,inheritance,insurance claims payment,tax refund are not taxable income.
also bank transfer,if you close one bank account and transfer the balance into another bank account.
But it is up to you to prove these arent taxable income.
Paypal and banks will keep records for 7 years,after that,you better have your own copies,IRS keeps them longer but you have to file a special form if it goes back too far.
No one talk about state sales tax,states are in need of money,esp those struck with natural disaster.
It will audit multiple years of your sales activities,from your PAypal account to your bank accounts.
It is better to keep a separate account for your ecommerce so it will agree with your Paypal and ebay,amzn,etsy etc records.
They are still using the traditional procedure,of a brick and mortar retail store,customer walks in and pay item cost plus sales tax and that sales tax should be remitted to the state.
With ecommerce,few buyers are from your state,but you have to prove that,this is where Paypal and MP and Etsy payment history comes in,they would show the name and shipping address of the buyer,it would tell the auditor it is an out of state sales.
if you cant prove it,then it is an instate sales and you fail to collect sales tax,you have to pay.
there is also use tax ,so bone up on it.
also digital sales where there is no shipping involved.

Re: Federal Tax vs State sales tax
 

some one asked about filing income tax -small business when it is a dropshipping business,you may not possess any inventory and do the packing and shipping ,but as a business,you do have expenses like home office,phone calls,banking,entertainment,equipments,software etc/
One interesting issue is IRS rule in regards to home office deduction,some professionals like doctors and lawyers think they can deduct home office expenses if they can use a room for bookeeping,research.
NO,it has to be a place where you earn your living,if you are a doctor,is this where you treat your patient,if you are a surgeon,I dont see how it is possible,but a shrink,a masseur,an accupuncturist can.
What would IRS think of dropshipper/
He does have expenses and he still need an office to run his business
also if you are claiming a room in your home for home office,and face a field audit,make sure the IRS auditor see that room is used strictly 100% for business,not a place where your kids can play games or you watch TV ,even after office hours.
remove all the silly non office stuff from that room like toys ,TV set unless your business needs a TV in the room.