A few days ago I blogged about how to get your Federal tax ID number.  Today I want to talk about the resale certificate. 

If you purchase items to sell on eBay, or if you purchase to make items to sell on eBay, you are not required to pay sales tax on the items you purchase that are for resale or go into the final product for resale.

When you purchase items or materials, the vendor you are buying from will want to see a "resale certificate" before they will remove the sales tax from your order.

Every state has a web site listing information about the tax rules in that state, and where you can obtain your resale certificate or sales tax ID number. Click on your home state below to go to the appropriate site, and get the information you need.

Lately, I’ve had several clients contact me to say that they had to pay a fee for their Employer Identification Number (EIN). 

This was perplexing to me, since applying for an EIN has always been free.

So, I did some research, and discovered that if you do a web search for EIN, you may be taken to a company website that charges a fee (average seems to be $150-200) to apply for an EIN.

Now, I suppose that if you are in a hurry and need your EIN immediately to apply for a bank loan or if a big client is requesting an EIN before they will hire you, it might be worth it to pay the fee to expedite your application.

But if you are applying for an EIN because you are starting a new business, or you are incorporating or chaning your business entity, and you don’t need the EIN right away, I don’t see any reason to pay up to $200 for an EIN. 

So, how do you get your EIN for free?  Just go to the IRS website, at www.irs.gov.  Once at the IRS website, click on SS-4 under Most Requested Forms.

For instructions on how to complete the form, and where to mail (or fax) the completed form, download the instructions for Form SS-4 at http://www.irs.gov/pub/irs-pdf/iss4.pdf. 

The form only takes a few minutes to complete, and best of all, it’s FREE!

I wanted to let you know about a new site - AuctionSelling101.com - that is coming out on the 31st of this month.

This is a new eBay learning site that includes step by step videos, private discussion forums, a 120+ page handbook, and a webinar room where the instructors will give *LIVE* support.

I have had a chance to review this site, and was impressed by the number of videos, audios and other tools for new and experienced eBay sellers.

Click here to learn more!

Many eBay sellers ask me, "what expenses can I deduct against my eBay income".

Here are the top 20 tax deductions for eBay sellers:

1. Inventory or product purchased for resale
2. eBay fees
3. PayPal fees
4. Postage and delivery
5. Supplies
6. Bad debts (for those non-paying bidders)
7. Advertising
8. Mileage (trips to the office supply store, post office, etc.)
9. Telephone (cell phone, second line, fax)
10. Bank charges
11. Accounting fees
12. Attorney fees
13. Computer and software
14. Contract labor
15. Furniture
16. Equipment
17. Office supplies
18. Membership fees
19. Continuing education
20. Home office expenses

A reader recently asked how hiring their children in their business could help save on income taxes.  Here’s an example:

In 2006, you could pay your child up to $5,150 (the standard deduction amount) without either of you incurring a tax liability. Suppose you’re in the 28 percent tax bracket and you pay your 15-year-old son (Junior) $5,000 over the course of a year to help package and ship items in your eBay business.

You get a business deduction for the wages paid to Junior, saving you $1,400 (28% of $5,000). If you’re a sole proprietor, you save even more in taxes because this reduces the amount of profit that is subject to self employment taxes (15.3% of $5,000 = an additional tax savings of $765).

Since your son’s earnings are less the standard deduction, he does not owe income taxes on his earnings. Even if you paid Junior more than the standard deduction, you would still save taxes. Since Junior is most likely in a lower tax bracket, his earnings would be taxed at 10 percent or 15 percent rather than 28 percent that you would pay on this income. This is called income shifting.

In addition, because Junior is under age 18, you do not have to pay Social Security, Medicare or Unemployment tax on him, like you would with a regular employee.

You could take this strategy even further by opening an IRA for your son thereby sheltering even more income from taxes.

This is a great strategy if your children are old enough and are interested in working in your business. The only thing to watch is that your children have to actually do legitimate work in the business, and you have to pay them a reasonable wage for the work they do. You can’t pay them $5,000 a year to do household chores or just to empty the garbage can (even if it’s your home office trash can!).

For more ways to save on income taxes, please check out our free special report Tax Tips for eBay Sellers.