In generations past, some people made a living by selling consumer products like encyclopedias and vacuums door-to-door in residential neighborhoods. The door-to-door salesperson is not as common as he or she used to be because many people interested in the direct selling industry have moved their efforts online. Selling products online allows individuals to run their own business while reaching a much larger potential audience. However, simply because the door-to-door salesperson has disappeared and your selling has moved to the Internet doesn’t mean that your duty to pay taxes has also gone away.
As a starting point, it is essential to recognize that the profit you make on your sales – regardless if the sale is made in person or online – is taxable income. The exact amount of tax that will come due is based on a number of factors including the volume of sales your company makes, your companies expenses and allowable claims for tax deductions and credits, and your business entity form. If you work for a direct selling business as an employee, your employment and income taxes should be deducted from your paycheck by your employer. However, if you are an independent contractor or run your own business, you may need to account for self-employment taxes. The failure to pay employment or self-employment taxes can result in harsh penalties that include fines and interest on unpaid tax.
In addition to income and employment tax concerns, business owners should also consider and account for sales tax, use tax, and other tax obligations that come with running a business or selling products online.