| As a small business person-slash-advice columnist I | | | | can apply online at the IRS website (irs.gov), apply by |
| dread the first quarter of the new year. Not because | | | | mail or telephone, or if you do business in a state |
| in my mind my own business fortunes start at zero | | | | that participates in the Federal Employer Identification |
| again every January or because I have already | | | | Number project you can apply through you local IRS |
| dismissed every New Year's resolution I made when | | | | office (sorry, Alabama is not one of them). |
| the clock rang out the New Year. | | | | You will need an EIN number prior to filing business |
| No, the reason I dread the first quarter of the new | | | | returns with the IRS, so make sure you give yourself |
| year is that my email box floods with questions | | | | plenty of time to obtain one. For more information on |
| about business taxes and the IRS, my two least | | | | EINs and your business, consult your accountant. |
| favorite subjects on earth. It's not that I am | | | | And while we're on the subject ... |
| opposed to paying my fair share of business taxes. | | | | Q: I made extra money selling things on eBay last |
| It's that I consider the IRS to be a little like | | | | year. These were items I picked up at yardsales |
| Beetlejuice, the movie demon who appeared only | | | | mostly. My husband says I am responsible for paying |
| after his name was called three times in a row. My | | | | income tax on the money I made, but I disagree. |
| fear is if I write too many IRS columns their dark | | | | This is just my hobby, not a business. What do you |
| agents may appear on my doorstep, ready to drag | | | | think? -- Gladys A. |
| me away to an uncertain fate. | | | | A: With so many people selling on eBay these days |
| Oh well, one must do his duty no matter the | | | | this is a question I get quite a bit. In fact, I have |
| consequences, so here we go.... | | | | plans for a future "eBay and taxes" column, but I |
| Q: I am starting a small retail business. While talking to | | | | believe your question is more, "is it a hobby or is it a |
| a potential supplier last week he asked for my EIN | | | | business?" |
| number. I had no idea what he was talking about, so | | | | Again, I went to the horse's mouth (at least I think it |
| I told him I would have to get back with him | | | | was the mouth) for the answer. According to the |
| because I didn't have the number handy. What is an | | | | IRS there are a number of factors that help |
| EIN number and why do I need one? -- Robert P. | | | | determine if your hobby can be considered a |
| A: Robert, do you remember the old Johnny Rivers | | | | business and thereby make you susceptible to the |
| song "Secret Agent Man?" There was a line that said, | | | | IRS tax rules governing business. |
| "They're giving you a number and taking away your | | | | Do you carry on the activity in a business-like |
| name." An EIN isn't as cool as a secret agent number, | | | | manner? If you conduct your eBay activities like a |
| but it works much the same way when it comes to | | | | business, i.e. you keep business records, track your |
| your business' relationship with the IRS. Instead of | | | | profit and loss, keep a separate checking account, |
| identifying your business by name, the IRS identifies | | | | etc. then whether you think so or not, your hobby is |
| your business by EIN. | | | | considered a business. |
| EIN stands for Employer Identification Number and is | | | | If you put considerable time and effort into your |
| also known as a federal tax ID number. The EIN is a | | | | venture, the IRS may contend that you do so for |
| nine-digit number that the IRS assigns to businesses | | | | profit and not fun. It seems the folks at the IRS |
| and is used to identify taxpayers that are required to | | | | don't believe in doing things strictly for pleasure. My |
| file various business tax returns. | | | | guess is, neither do you. If you weren't making |
| Does your business need an EIN? According to the | | | | money selling on eBay I doubt you'd be bothering |
| IRS the answer is yes if: | | | | getting up at 4am to hit all those yardsales. Then |
| · Your business has employees | | | | again, maybe you would... |
| · Your business is a corporation or partnership | | | | If you depend on income from your eBay activities |
| · You file returns for Employment, Excise, or | | | | for your livelihood, it's a business, not a hobby. |
| Alcohol, Tobacco and Firearms tax | | | | There are a number of other factors the IRS |
| · You withhold taxes on income (other than | | | | considers to determine if a hobby is really a business, |
| wages) paid to a non-resident alien. | | | | but in your case I think that covers the basics. |
| · Your business has a Keogh plan | | | | For detailed answers to any tax question you should |
| · Your business involves trust, estate, real | | | | consult a qualified accountant or tax attorney. God |
| estate mortgage investment conduits, non-profit, | | | | forbid you rely on a guy who is afraid to mumble the |
| farmers' cooperatives, or plan administrators. | | | | letters "IRS" three times in a row. |
| Applying for an EIN is a relatively painless task. You | | | | |