STARTING YOUR EBAY BUSINESS
Before you start your eBay business, you should obtain the business licenses and permits required by your state, county and city. These documents will be needed to avoid paying sales tax when purchasing goods for resale and for properly filing your business taxes at the end of the year. For tax issues relating to eBay, see eBay Tax Issues for more information.
Choose Your Business Name & Structure
One of the fun things about starting a business is choosing the name. You can chose any name you like, but you may want to check if the domain name and eBay ID is available. It is surprising how many names have already been taken. You can check the availability of a domain name at www.godaddy.com. I like using godaddy as they give you a list of alternative domain names if the one you want is already taken. To check the availability of an eBay ID, use eBay Registration page. You can enter a user id and click on the "Check Availability of User ID" button. You don't have to fill anything else out on the form to check user IDs. If you find one you like, I recommend you register it immediately before someone else gets it.
One you have picked out your business name, it is time to decide what kind of business entity your business will use. There are five choices:
- Sole Proprietor
- Limited Liability Company (LLC)
There are different legal and tax ramifications, depending on the choice you make. For most people starting a new eBay business, becoming a sole proprietor is the best and simplest option. If you are going into business with a spouse or friend, selecting a partnership is something to consider. For the other options, you will probably need legal advice.
Federal Tax ID
The federal Tax ID, also known as the Employer ID is a nine digit number assigned to businesses by the IRS. This number is required if you have any employees or if your business collects sales tax. To apply for a Federal Tax ID, fill out IRS form SS-4. You can file SS-4 online at the IRS web site SS-4 Online Application. Filing with the IRS is completely free. Unless you don't like doing paperwork, there is no reason to pay a service to do it for you.
Local Business License
Your local county, and sometimes your city, will usually require you to obtain a business license. All required forms can be found at your city hall or county government offices. Usually they require you to advertise your intent to open a business in a local paper and to pay a nominal yearly fee. After your business has been approved, you pay a renewal fee once a year to keep your business active.
Some states may also require you file for a business license. Check your state government web site or local library for more information.
Since you will be buying and reselling products on eBay, you will need a state seller's permit or license. These are usually obtained from your state Franchise Tax Board. When you have a seller's permit, you don't have to pay sales tax on goods you purchase for resale. You do have to collect sales tax when you sell those goods within your state. The collected sales tax must be paid to your state Franchise Tax Board on at least a quarterly basis. Your eBay listings can be set to automatically charge sales tax to buyers only in your state.
A seller's permit is required to do business with wholesalers and liquidators. You will also need one to attend retail trade shows. Trade shows are a great place to find merchandise for your eBay store.
Open a Business Checking Account
You need to keep your business and personal finances separate. If you don't, you will have a nightmare at tax time. Compare the offerings from your local banks. Banks typically charge service fees for how many business checks you write per month. You shouldn't need to write very many checks with an eBay business, so you can chose the least expensive business account. Many banks will offer free business checking accounts for the first year, so shop around.
Obtain Business Insurance
Even if you are running your business from your home, you should get separate business insurance. At a minimum you will need insurance coverage for storing and transporting your store inventory. If customers or vendors come to your place of business, you will also need liability insurance. Contact your local insurance representative for a quote. If you are have trouble finding an underwriter for the business insurance, have your agent look into offerings from Hartford Small Business Insurance Center. If you are renting a space for your eBay business, your landlord will likely require that you obtain business insurance.