South Carolina Tax Attorney

    While in law school, I ran a small retail business selling display cases for sports memorabilia such as football helmets or autographed basketballs and such.  As with many online businesses, I drop-shipped most of my products, meaning I never actually purchased them from a wholesaler until I had sold the product on my web site or an online auction site. 

    In researching products to sell and trying learn more and more about having an online business I run across a lot of false information in internet forums and other blogs.  It seems like a lot of people believe that since they are running their business out of a bedroom of their home rather than getting up and driving to an office every day, they are somehow exempt from filing tax returns or reporting their income.  That is simply not true.

    I encourage everyone who operates a business, whether it is a home-based online business or a million-dollar corporation with a huge building and many employees to keep good records of income and expenses so you can adequately prepare a profit and loss statement each year to accurately prepare and file your income tax returns.

    This is especially important for small business owners and businesses similar to my online retail business.  Since you do not "own" the inventory because you drop ship the products it becomes easy to act like the transaction did not happen and you can just pocket the money that you earned on the sale.  However, you should keep good records of all of the inventory your purchase and the income you receive from your sales, as well as the other related expenses such as shipping supplies and costs and packaging materials so you have your true net profit. 

    Your business income tax return will basically be a profit and loss statement for the business and if you have a net income from the business for the year you will be required to pay income taxes and self-employment taxes.